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Repayment
Increased tax relief thanks to indirect repayments. Find out how you can benefit.
Overview
With a typical mortgage, you repay it or part of it in equal amounts, usually on an annual basis. Repayment is compulsory for a second mortgage. You must repay your mortgage(s) by your 65th birthday.
Direct Repayment
Direct repayments are mortgage repayments which you make directly to the bank in regular installments. The mortgage debt and the interest reduce on a regular basis. However, the tax burden rises at the same time as the tax deductions reduce.
Indirect Repayment
With indirect repayment, the mortgage remains at the same level for the whole of its term. Instead of making mortgage repayments directly to the mortgage account, you pay contributions into a Pillar 3a account, safekeeping account or policy. These contributions are not used to pay off the mortgage debt until the Pillar 3a account is closed. Instead of investing in Pillar 3a, you can invest in a life insurance policy which attracts a special rate of tax.
Unlike interest on direct repayments, the debit interest on indirect repayments will remain the same - subject to changes in the interest rate - if the indirect repayment option is selected. Owners of residential property can deduct debit interest from their taxable income.
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