When buying a house, you usually consider getting a mortgage from a bank or a mortgage lender. Another option is to borrow from your parents or relatives, known as a family mortgage.
What is a family mortgage?
A family mortgage works just like a regular mortgage. However, it differs because it involves borrowing money from family members or relatives rather than a financial institution like a bank. You agree with your loan provider on certain terms, conditions, and understanding between family members involved in the lending and borrowing. A family mortgage can be a compelling option that can benefit everyone involved.
What are the benefits of a family mortgage?
There are several benefits of receiving donations from family:
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The primary advantage of a family mortgage is that the funds remain within the family. For those lending the money, the benefit lies in earning higher revenue than placing the funds in a savings account. While the mortgage interest might be relatively low, the interest earned on savings would be much lower.
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You could benefit from borrowing more money. Also, if you get a mortgage from the bank and the family mortgage, you will likely have to pay less overall interest.
Risks of family mortgage
Since a family mortgage often involves large amounts of money, there are risks that you cannot oversee:
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Consider potential scenarios like unemployment or disability.
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Parents must ensure they maintain financial stability after providing the donation.
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Future family changes, such as marriages, divorces, or changes in financial situations, might impact the loan agreement or create complications.
Because of these risks, seeking a mortgage advisor's advice before drawing up an agreement is crucial.
Mortgage interest deduction
A family mortgage can cover the entire cost of your home, but you can also choose to take only a portion of the loan as a family mortgage. Like a typical mortgage, you can deduct the interest from a family mortgage on your tax return if you meet these three requirements:
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The interest must be in line with the market.
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The loan must be repaid within 30 years.
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The terms and conditions must be recorded in writing, often through a notary.
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Loan for the primary residence.
Requirements
Like a bank, your family members must report each year on the money you have repaid and the interest you have paid. This info must be shared with the Dutch Tax Authorities. You must pay the interest and mortgage repayment; you can't escape it through forgiveness.
Tax-free donations in 2024
The gift exemption, commonly called "jubelton," was a unique initiative enabling parents to financially assist their children in buying a home. In 2024, if you are between 18 and 40 and are using the exemption for the first time, you may be entitled to a tax-free donation of up to € 31,813.
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