Tax measures on the deductibility of loan interest.

After the “fiscal package” adopted this summer, which included a whole series of measures in favor of individuals, the 2008 finance law was finally adopted. It contains important provisions such as the modification of the taxation of capital gains or the deductibility of loan interest , the flagship measure of this tax package.

What are the foundations of this new tax measure?

What are the foundations of this new tax measure?

This measure is intended for all borrowers in the context of the purchase of a principal residence in the new or the old whose authentic instrument was signed as of May 6, 2007.

What tax benefit?

What tax benefit?

The amount of the tax deduction for interest paid for the first year of repayment is doubled in the first year of the loan: 40% of the loan interest will be deductible from taxable income and 20% the following four years. The date from which the first five installments are deducted is the date on which the borrowed funds are made available for the first time.
This advantage concerns all borrowers, whether or not they are taxable on income.

The amount of this deduction will result in a tax credit capped for the first year at $ 1,500 for a single person, at $ 3,000 for a married or PACS couple, and $ 200 per dependent. In subsequent years, the tax credit will be capped at $ 750 for a single person, $ 1,500 for a married or PACS couple, and $ 100 per dependent.

How long does this tax benefit last?

How long does this tax benefit last?

The duration of this system will be spread over 5 years from the date of borrowing.

What becomes of the zero rate loan?

What becomes of the zero rate loan?

The zero rate loan (PTZ) whose objective is to facilitate the first home ownership, will not be questioned. Thus, first-time buyers can accumulate the PTZ and the deductibility of interest from other mortgage loans.

How to handle a non-purpose loan and not burn yourself?

Today we will discuss the main features of a non-purpose consumer loan. We will talk about the pitfalls of various products and how to detect them in time.

 

Basics

A non-purpose consumer loan is simply a loan. Whether you are borrowing new money or merging existing loans into one (consolidation), you are mainly interested in the following parameters:

  • interest rate
  • maturity
  • options and conditions for early repayment
  • fees and resulting APRC

 

Interest rate

Interest rate

The average interest rate on consumer credit in August 2019 was 8.46% pa The abbreviation “pa” means “per annum” or annually. So if you borrow 100,000 USD with this interest rate, we can say for the sake of simplicity that your interest will be 8,460 USD for the first year. Interest paid over time is gradually reduced.

Sometimes the offer of interest rate is conditioned by negotiation of an additional product (insurance, account etc.). If you see a term like “Bonus interest rate” and similar terms somewhere, then be sharp. This is an interest rate that only applies under certain conditions. This is usually a condition where the loan will not be repaid early and no extraordinary repayment will be made.

 

Maturity

loan money

In the Czech Republic, you can borrow money from a few days to several years. The longest maturity of a non-purpose loan may be a maximum of 10 years.

 

Possibility and conditions of early repayment

loan repayment

As of 1 December 2016, this is defined by law. The maximum early repayment fee may be 1% of the current loan balance (principal). It is worth noting that some banks offer this for free, ie without charge.

 

Fees and resulting APRC

loan fee

The APRC stands for Annual Cost Percentage Rate. It is an expression of the interest rate after including all related fees. And here you have to be very careful. If the APRC and interest rates differ significantly (in the order of a few%), this means that you have additional charges hidden in the loan. It can be a negotiation fee, insurance price or other accompanying costs. The accompanying costs must be clearly quantified in the credit agreement. I have already seen APR 130.77% pa Such a client would not have a chance to repay. Always find this information in the loan agreement.

 

Will I get a loan?

money loan?

Sometimes I see people think that for some reason the bank should not grant them credit. Very often this fear is unnecessary. If you are a working person and you have room in your monthly budget to repay the loan, it is very likely that you will find a bank that will grant you the loan. Therefore, do not take the first offer without prior competitive comparison.

If you are interested in this article, I will be happy to help you to compare offers on the market and also with the process of negotiating a loan, refinancing or consolidation. We may contact in any of the ways described below.