Mortgage before 2013
Was your mortgage taken out before Jan. 1, 2013? Then the mortgage interest, regardless of the mortgage form, may be tax deductible (subject to conditions). Want to know what happens if you refinance a pre-2013 mortgage or move? Our financial advisors can tell you more about that.
Entitled to mortgage interest deduction?
Since 2001, mortgage interest may still be tax deductible for up to 30 years. The deduction percentage depends on the tax bracket that applies to you. The 30-year term starts when the mortgage is taken out. Did you take out a mortgage before 2001? Then the 30-year term began on Jan. 1, 2001; thus, it ends on Jan. 1, 2031. Does your mortgage date from after 2012? Then the loan must be paid off during the term.
Linear mortgage?
With a linear mortgage, a fixed repayment amount is paid each month during the term. Above that, interest is paid on the unredeemed portion. So each month this interest amount gets lower.
A linear mortgage has higher gross and net monthly expenses at the beginning than an annuity mortgage. Even with a linear mortgage, the tax benefit is slightly less each year.
But because a lower amount of interest is paid each month, the charges do decrease over the term. But every situation is different so get information from our financial advisors.
Annuity mortgage?
The advantage of an annuity mortgage is that the net monthly costs are lower at the beginning than with a linear mortgage (see below). Throughout the term, you pay a fixed you a fixed gross total amount. Part of this monthly amount is used to repay the loan and the other part is interest.
In the early years, the repayment portion is small and the tax-deductible interest portion is large, hence the low(er) net monthly costs. During the term, this "shifts. The redemption portion then becomes larger and the interest portion smaller.
So the disadvantage of an annuity mortgage is that the net monthly cost increases as the term of the mortgage expires. But perhaps given your future income development, this is the best fit for you.
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