With a savings mortgage, you build up a savings pot over the years to pay off your mortgage. You can also buy off the savings mortgage at any time and then have access to the accrued capital sooner. But the question remains whether buying out a savings mortgage or making early repayment is wise. You have to incur all kinds of costs, including tax costs. On the other hand, the exemptions for such a capital insurance policy are high. Buying out a savings mortgage is explained to you here. Buy off at the right time. Interestingly, there are some cases where early redemptions are permitted. For example, purchasing life insurance and perhaps endowment insurance can be made more fiscally attractive in the event of a divorce or debt assistance. Repayment without penalty, this becomes even easier.
What is a savings mortgage?
The principle of a savings mortgage is that you have a mortgage and have also opted for fiscally smart savings via a savings account. You save this in a blocked account, where the money invested grows annually with interest. This interest is equal to your mortgage interest. This has the great advantage that if the mortgage interest rate rises, you pay more interest on the mortgage, but at the same time receive more interest on the accrued capital. You will be less affected by an increase in mortgage interest, which is also tax deductible, with a savings mortgage than with an average mortgage. An additional feature is that you take out life insurance, for which you pay a premium.
Save with a savings mortgage
The amount saved with a savings mortgage can be considerable and this may raise the question of how you can access these savings more quickly. After all, it is a blocked account. So the relevant question is whether it is possible at all. Moreover, it is important to know what the tax authorities think about this.
The mortgage bank
You will need to consult with the mortgage lender to see how they are willing to pay you. Most will want to pay you out early, but will of course also charge you for this. In other words, just ask the mortgage lender and see what amount they are willing to release.
As soon as a policy is opened, the Tax Authorities will look at the period during which the policy was in force and the tax exemptions that apply. After all, you are entitled to a tax exemption of a maximum of 168,500 per person. Maximum, because the exemption from the Tax Authorities is never higher than the home acquisition debt on your house nor higher than the repayment you make on the home acquisition debt. What you do not use from this exemption can be transferred to another savings mortgage during your lifetime, if you wish. However, an exemption is not transferable to another person. A capital insurance policy taken out before September 14, 1999 has a more favorable tax regime with an additional exemption in box 3 until September 14, 2029 at the latest.
The term of the savings mortgage no longer plays a role
The conditions that you must have your mortgage for at least 15 years in order to be able to use your savings without penalty is a time constraint. This time clamp expired in 2017 if you use the savings balance to pay off your existing mortgage when you move. Finally, for policies dating from before 1992, the benefit is fully exempt if the policy has a term of more than 12 years and the requirements for the spread payment of premiums have been met.
Buy off a savings mortgage in box 1 of the income tax
All this does not always mean that the savings amount paid out prematurely is completely tax-free. The interest component of what you receive in excess of the exemption is taxed. The same applies if the savings pot is now larger than the mortgage debt. Not in box 3 for savings and assets, but in box 1. There is also a well-known formula for this: R= ((UB)/U)*S Here is:
- R= The taxed interest component.
- U= Benefit.
- B= Tax exemption
- S= U minus the premiums paid.
So if R is positive, you must add it to your income in box 1. The tax rate is a maximum of 52%. The tax percentage depends on the level of your income.
Suppose the benefit is 36,000 euros and you have paid 22,600 euros in premiums. Suppose the tax exemption = 30,000 euros, then this means that:
- U= 36,000
- B= 30,000
- S= 36,000-22,600= 13400
It follows that R= (6000/36000)* 13400= 2233 euros.
There is a residual debt
What is new is that if there is a residual debt, this residual debt may be financed tax-free from the savings portion. The rest can be taken to the next owner-occupied home (tax continuation) or can be bought out. The redemption is then taxed again if higher than the premiums paid. You can also take the entire mortgage with you and finance the residual debt in a different way.
Sometimes relaxation of redemption
The time clamp will also be canceled if:
- There is a divorce or the termination of tax partnership.
- The sales price of the previous home is insufficient to pay off the home acquisition debt (residual debt).
- There is a situation of debt assistance.
Anyone who wants to open their savings mortgage early would do well to make the above sum and, if necessary, seek additional mortgage advice. It is not impossible to open a savings mortgage, but it is also not always profitable enough.