Home savings schemes explained
The home savings scheme aims at building up savings in order to benefit from a prime rate loan. It is also a very interesting financing solution even if you have not made up the appropriate home savings scheme at the time of financing. And this is particularly true since it embeds attractive tax allowances.
The contract consists of two phases:
An initially determined amount (about 40% to 50% of the subscribed capital) must be saved in order to be entitled to a prime rate loan. This first phase is prefinanced by a loan on which only the interest due will be paid (a bullet loan). Each monthly payment feeds the savings account and pays the interests associated with the loan.
Once the savings amount has been reached, the subscriber can trigger his right to a traditional prime rate loan. This prime rate loan is used together with the savings accumulated during the savings phase to fully reimburse the bullet loan. If the market has not evolved in favour of the prime rate loan, the subscriber can choose another type of financing.
Depending on your personal situation, the home savings scheme can be a very interesting solution on top of a classical financing (used in a mixed solution). In addition to the loan interest tax deduction, this solution offers the possibility of deducting, up to a certain threshold, the payments made under the home savings scheme.
Are you looking to finance your primary residence? Nexfin offers you to define the best mix to maximise your tax savings.
Home savings scheme payment deduction ceiling
€ 672 per person in the household including dependent children if taxpayers are more than 40 years old as of 1st January of the fiscal reference year. € 1 472 per person in the household including dependent children if at least one taxpayer is less than 41 years old as of 1st January of the fiscal reference year.
If the savings period is interrupted before its 10th anniversary and the capital saved is not allocated to a primary residence financing (property purchase, renovation or debt repayment), then the accumulated tax benefit must be returned to the administration. On the other hand, after a savings period of at least 10 years, the capital may be used without any restriction. However, if it is not allocated to a primary residence financing, it will no longer be possible to deduct any future payments upon opening a new home savings scheme.
Simplified example of a € 60 000 loan over 10 years, backed by a home savings scheme for two 30 years old co-borrowers with two young children and having a taxable annual income of € 100 000.
Savings phase: € 27 900 to be saved over 5 years backed by a € 60 000 fixed rate bullet loan at 1.45%. Total interests paid € 4 350.
Lending phase: € 60 000 repaid with € 27 900 of savings and a € 33 350 fixed
rate loan at 1.00% over 5 remaining years. Total interests paid € 860.
Total financing cost € 5 210 of interests payment + € 1 250 of home savings fees (1% of subscribed capital and 2% of loan opening fees depending on the home savings institution).
Tax savings: Home savings scheme payment up to € 26 880 and interest charge of € 5 210 are deductible due to the personal and financial situation.
The total tax savings amount is € 13 300, a net gain of € 9 876 thanks
to the use of home savings scheme.
€ 13 300 - € 2 174 (loan interests tax savings) - € 1 250 (home savings fees) = € 9 876