7 tips about extra mortgage repayments

Making extra repayments will reduce your monthly mortgage costs. However, if you want to seriously lower your monthly costs, those extra repayments will need to be substantial. Read our article: ‘5 ways to lower your mortgage payments’.

Make sure you always have enough cash at hand to pay for major future expenses, like a new car or your children’s tuition fees. Remember: only make extra repayments if you can afford to.

Repaying your mortgage is cost-effective if the net return on your wealth in box 3 (such as your savings and investments) is lower than the net cost of your mortgage. Your returns will be lower, but your costs will go down too.

One factor to bear in mind when looking at the return on your wealth is box 3 tax. The tax rate stands at 36%, but the effective tax burden depends on your personal situation and whether you’re above or below the tax-free allowance, for instance. 

The rate at which you can deduct mortgage interest in 2025 is capped at 37.5%. Your effective tax saving also depends on your personal situation, such as the ‘eigenwoningforfait’ (additional tax on taxable income from your main residence) and the tax rate in box 1 (income from work and home ownership). If you’ve reached state pension age, the effective deduction rate is often lower than 37.5%.

Basically, if your mortgage rate is higher than the net return on your wealth in box 3, you may want to do more research and run some careful calculations. You should consider the tax rate in box 1, your ‘eigenwoningforfait’ and the tax-free allowance on wealth in box 3.

If you’d like to find out more, have a look at the article about when you should pay off your debt – written by our advisers.

By making extra repayments on your mortgage, you’re likely to have equity when you sell your home. If you’re selling your current home to purchase your next home, the Dutch Tax and Customs Administration assumes you’ll put that home equity towards the purchase of the new property.

You can only deduct the interest on the mortgage that you take out to cover the remainder of the purchase price. This is called the ‘bijleenregeling’, or the additional loan scheme. This ‘locks’ your home equity into the new property, so it can’t be released. This rule doesn’t apply if, after selling your home, you live in rented accommodation for at least three years before buying a new home.

Read our article: ‘Do you want to use your home equity?’.

Generally speaking, you’ll pay a risk surcharge if your home is worth less than your mortgage debts. This surcharge might decrease if you make extra repayments, as a smaller mortgage means the bank is exposed to lower risks of borrowers defaulting. If that describes your situation, remember to apply for a lower risk surcharge with your bank.

You can read more in the article: ‘5 ways to lower your mortgage payments’.

If you’ve decided to make extra mortgage repayments, when you pay can make a difference. The tax on your income from savings and investments (box 3) is calculated according to the value of your assets on 1 January of the tax year in question. This is known as the ‘reference date’. Repaying just before or after that date can make a difference to the amount of tax you owe. 

For instance, if you make an extra repayment before 1 January, that amount won’t be part of your box 3 taxable base on the reference date and therefore won’t be subject to wealth tax (box 3). 

If you make a repayment just after 1 January, your taxable base will remain the same in that tax year and any wealth above the tax-free allowance of €57,684 (€115,368 for tax partners) will be taxed.

Making repayments out of your savings after the reference date is more cost-effective than repaying using assets that come under the category of ‘other assets’.

If you repay your mortgage earlier than agreed, your bank may charge you a tax-deductible early repayment fee. This is to compensate for the loss of interest income if the going mortgage rate at that time is lower than the rate you’ve agreed with the bank.

In certain situations, you won’t incur an early repayment fee if you make an extra repayment. This is the case if you have a variable-rate mortgage or your mortgage is at the end of its fixed-rate period.

You also won’t owe an early repayment fee if you sell your home or if the going market rate is higher than your current mortgage rate. Be sure to check your mortgage terms and conditions, too. Generally speaking, you can repay a certain percentage of the original mortgage (e.g. 10%) in addition to your agreed payments without incurring an early repayment fee.

Repaying your mortgage early may seem wise, but it’s not always the right choice for everyone. Whether it makes sense to make extra repayments on your mortgage depends on your personal financial situation and your mortgage terms and conditions.

If you still have an endowment mortgage, making repayments can actually work against you. So make sure you explore all your options and weigh up the pros and cons before making extra repayments.

If you’d like to discuss your options with an expert, join a free Mortgage 360° consultation with one of the advisers on the Preferred Banking team. You can arrange a consultation even if you have a mortgage with another provider.