Prior to 2013
Prior to 2013, a mandatory principal payment was not a necessary requirement to be eligible for mortgage interest tax deduction. Therefore you could also select an interest-only mortgage, whether linked to a capital accrual product or not. The accrued capital will be used to repay the mortgage at the end of the mortgage term. Thus there is an optimal tax advantage: you can deduct your mortgage interest in full, and the accrued capital, under certain conditions, will not be subject to a box-3 levy. The most common form of this mortgage type is the guaranteed savings account mortgage (bankspaarhypotheek).
In the case of an interest-only mortgage, the capital is not repaid and you only pay mortgage interest. The advantage is that the monthly costs are as low as they can be. In the event that the value of the house is lower than the outstanding debt, the risk of a negative home equity is present. Normally speaking, you are unable to lend more than 50% of the value of the house with an interest-only mortgage. Your mortgage broker can inform you of the possible exceptions. Since 2013, you can only deduct mortgage interest of a new interest-only mortgage from taxes under certain conditions. In all cases, you have to be able to show that you already had a mortgage on your home prior to 2013.