Direct / Indirect amortization

Becoming the owner of a property implies a change in your tax situation, and opens the way to various optimization methods.

In the vast majority of cases, the institution granting you a mortgage will ask you to pay off the debt while leaving you free to choose between direct or indirect repayment.

In order to fully understand the advantages and disadvantages of these two methods, it is necessary to integrate the basic tax aspects, namely :

Elements to improve your taxation :
Mortgage debt -> reduces your taxable assets
Mortgage interest -> decrease your taxable income
Indirect depreciation -> reduces your taxable income (under certain conditions)
Property maintenance costs -> reduce your taxable income

Elements detracting from your taxation :
Tax value of your property – > increases your taxable wealth (with a discount for the first 10 years)
Direct depreciation -> non-deductible
Theoretical rental value of the property -> increases your taxable income

The first method of tax optimization is to try to maximize the elements that have a positive impact on your tax bill while decreasing the elements that tend to increase your tax bill.

Direct amortization :
You reduce your debt consistently, usually quarterly, in addition to paying interest.

This reduces your mortgage load over time but increases your tax burden.

As your debt is gradually decreasing, the interest burden will also decrease year after year, with a double negative effect :

1. Gradual increase in your taxable income due to a reduction in the amount of deductible interest
2. Increase in your taxable assets due to progressive debt reduction

The direct depreciation method is therefore not optimal, as it allows you to gradually reduce your mortgage burden but increases your tax burden.

Indirect amortization :
The idea here is not to reduce your debt in a real way, but to build up a separate savings capital, which will be used to reduce your debt when you retire.

This savings is made by means of a 3rd pillar on which you make regular payments and which is given as security to the mortgage institute.

This gives you a double advantage :

1. the amount of your debt and interest remains constant, thus maximizing your tax deductions
2. since direct depreciation is replaced by a payment on a 3rd pillar, your depreciation becomes deductible from your taxable income

Indirect depreciation can still offer other advantages depending on the form in which it is taken out (third pillar life insurance), you will find out more about it in the third pillar section.

It should be noted that these optimization methods are aimed at financing a principal residence and have an impact more or less important depending on your personal situation and your place of residence. Other approaches are recommended if the funding is for a rental property or second home.

Our experts will be happy to study the most appropriate solution for your situation and provide you with the corresponding simulations.


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