Extra mortgage repayment of €5000

For me it’s common to make an extra mortgage repayment on a yearly basis above the monthly payments which are standard. I always do this in May, because in May I normally get my tax return deposited from the Belastingdienst (Dutch tax agency). Also it’s common in The Netherlands for companies to pay out a holiday allowance of 8% of the yearly salary to their staff in May.

My tax return is mainly based on the balance between the tax I pay over my assets (savings, share portfolio, bonds, etc) and the tax return I get on mortgage paid. In the Dutch tax system paid mortgage interest can be deducted from paid income tax. Basically it means I get approximately 50% of my paid mortage interest back from the government.

A few years ago this always resulted in a few thousand euro’s tax refund, but as a result of my interest percentage decreasing from 4,8% to 1,99% at the end of the fixed interest period I not pay that much interest anymore and the tax return is relatively small compared to a few years ago. In the past I got almost €3.000 as tax return, but this year due to the low interest I pay in combination with tax I have to pay over my assets (vermogensbelasting) I get back €1.000.

The holiday allowance which the company pays out in May to me is approximately €3.000.

The tax return and holidayallowance plus a bit of my savings I use to repay €5.000 extra on my mortgage. This will result in a yearly saving of €360 on future mortgage payments.