How does mortgage interest tax relief work?

Everyone who buys a home has to deal with it: mortgage interest tax relief.

For more than a hundred years, homeowners have been allowed to deduct the interest they pay on their mortgage from their taxable income. And that makes a significant difference to monthly costs.

But how does mortgage interest tax relief actually work? What conditions apply? And why is there increasing discussion about the phasing out of this scheme?

We explain this as clearly as possible below.

What does mortgage interest tax relief mean?

Mortgage interest tax relief means that you can deduct the mortgage interest you pay that is approved by the tax authorities from your gross income. This lowers your taxable income, meaning you pay less income tax.

The tax authorities usually settle this through the annual tax return, but you can also choose to receive a monthly provisional refund.

The deduction applies for a maximum of 30 years for mortgages used to purchase, improve, or maintain your own home, and you must meet specific conditions.

Key conditions for mortgage interest tax relief

1) The property must be your own home in which you live yourself. The scheme does not apply to a second home or a holiday property.
2) Since 2001, you may deduct mortgage interest for a maximum of 30 years. This term restarts for each new loan.
3) If you take out a mortgage after 1 January 2013, it must be fully repaid within 30 years using an annuity or linear mortgage. Only then is the interest tax-deductible.
4) Did you already have a (partly) interest-only mortgage before 2013? In that case, you are often still allowed to use the old rules.
5) If you sell your home with a surplus value, you must reinvest that amount in your new home. If you do not, mortgage interest relief lapses for that portion.
6) There are separate arrangements in cases of divorce, relocation, or payment difficulties. Make sure to seek proper advice if this applies to you.

What is the owner-occupied home tax (imputed rental value)?

The owner-occupied home tax (imputed rental value) is an amount that homeowners must add to their income and on which they pay income tax.

The tax authorities reason that you could generate income from your owner-occupied home if you were to rent it out. In addition, it ensures that homeowners pay extra tax when the value of the property increases.

In short, the owner-occupied home tax increases your taxable income. It is only applied to the home you actually live in and that serves as your primary residence.

When calculating the total deduction, the owner-occupied home tax is added to your income; this is a percentage of the WOZ value.

The WOZ value is the estimated market value of a property, such as a house, garage, or commercial building, as of 1 January of the previous year. Although this slightly increases your income, your taxable income ultimately remains lower than your actual income due to mortgage interest tax relief.

Phasing out of mortgage interest tax relief

Mortgage interest tax relief has been under discussion for years and is being reduced step by step. It was originally introduced to encourage home ownership.

This tax benefit made owning a home more fiscally attractive. However, mortgage interest tax relief is no longer entirely uncontroversial.

Where homeowners used to be able to deduct more than half of the interest paid, that percentage has decreased significantly in recent years.

Up to and including 2013, the reduction took place in small steps of 0.5 percentage points per year. From 2020 onwards, the pace was accelerated: the deduction decreased by 3 percentage points each year.

By now, the deduction has been linked to the basic rate of income tax. In 2025, the maximum mortgage interest tax relief is only 37.48%.

Future of mortgage interest tax relief

Mortgage interest tax relief can therefore still provide a significant tax benefit. In 2025, you are still allowed to deduct part of the interest, but the scheme is being gradually phased out.

For many homeowners this amounts to a few tens of euros per month, but first-time buyers with a high mortgage feel the effects more strongly.

How this will develop further depends entirely on political parties. Some want to abolish the scheme completely, while others only want to introduce restrictions for higher mortgages.

What is clear, however, is that mortgage interest tax relief is playing an increasingly smaller role within the tax system. What this ultimately means for your personal situation depends on your income, the size of your mortgage, and your plans for the future.

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