Should you pay off your Mortgage directly or indirectly?
Impartial advice is important
The question of whether a should be amortized directly or indirectly is one of the most important decisions when it comes to Both options have advantages and disadvantages—and have different effects on taxes, liquidity, and wealth accumulation.
Advice on this topic is often subject to conflicts of interest.
Hypothek
Eine Hypothek ist ein Darlehen für den Kauf oder Bau einer Immobilie in der Schweiz, bei dem die Liegenschaft als Sicherheit dient. Hypotheken können direkt bei einem Hypotheken-Anbieter abgeschlossen werden oder über Hypotheken-Plattformen. HYPOTHEKE.ch ist die grösste online-Hypothekenplattform. Die wichtigsten Hypotheken in der Schweiz sind folgende: Festhypothek,SARON-Hypothek
Immobilienfinanzierung
Unter Immobilienfinanzierung versteht man die Finanzierung einer Immobilie mit Eigenkapital und Fremdkapital. In der Schweiz erfolgt die Finanzierung meist über eine Hypothek, welche durch Eigenmittel ergänzt wird. Um die optimale Hypothek mit den besten Zinsen zu finden, sollten Immobilienbesitzer aktuellen Hypothekarzinsen vergleichen und mehrere Offerten einholen.
Explanation
Direct or Indirect Amortization
There are two basic ways to repay a Mortgage.
Direct Amortization
- Your Mortgage balance is reduced over time
- Your interest costs drop immediately
Indirect Amortization
- The mortgage remains in place
- Instead, you save capital (e.g., in the which will later be used for repayment.
Die Säule 3a ist die gebundene private Vorsorge in der Schweiz und bietet steuerliche Vorteile. Im Zusammenhang mit Hypotheken kann sie für indirekte Amortisation, Zusatzsicherheiten oder Wohneigentumsförderung (WEF) genutzt werden. Die Säule 3a kann je nach Ausgangslage dazu dienen, das persönliche Hypothekarrating zu optimieren.
The difference, then, lies in whether the debt is reduced immediately or only in the future. With , the accumulated capital is pledged in favor of the mortgage lender
Bei der indirekten Amortisation wird die Hypothekarschuld nicht direkt zurückbezahlt, sondern das Geld in eine gebundene Vorsorgelösung wie z.B. die Säule 3a einbezahlt. Die Hypothek bleibt dadurch bestehen, während gleichzeitig Vorsorgekapital aufgebaut und häufig Steuern optimiert werden können. Mehr hier: Indirekte Amortisation der Hypothek
Simple and transparent
Direct amortization
With , you pay off your Mortgage in installments—either regularly or with one-time payments.
Benefits
- Lower interest costs
- Less debt = lower risk
- Simple and transparent
Disadvantages
- Fewer tax deductions
- Capital is tied up in the property
- Less flexibility
With most , the amount of the amortization payments must be determined at the time the contract is signed. With certain mortgage lenders, you may be able to decide each year whether or not you want to make principal payments. In most cases, such “amortization models” have defined maximum amounts, such as 20,000 francs per year.
Bei der direkten Amortisation wird die Hypothekarschuld laufend durch regelmässige Rückzahlungen reduziert. Dadurch sinken die Hypothekarschuld und die Zinskosten Schritt für Schritt über die Jahre. Mehr dazu hier: Direkte Amortisation versus indirekte Amortisation
Ein Kreditgeber stellt dem Kreditnehmer Kapital zur Verfügung und erhält dafür Zinsen. Bei Hypotheken sind Kreditgeber in der Schweiz meist Banken, Versicherungen oder Pensionskassen, die die Finanzierung vertraglich und durch ein Grundpfand absichern.
Visualization
Mortgage reduction over the years
Target Audience
When Does Direct Amortization Make Sense?
Direct amortization is particularly beneficial for people who prioritize security and want to consciously reduce their debt. It also makes sense if there are no attractive investment opportunities available. It is ideal if you can still make additional contributions to a Pillar 3a account.
Important
If you opt for direct amortization, be sure to maintain sufficient liquidity for unforeseen events. If you can choose the amount of the amortization freely (none or only a small amount it’s better to set it a bit lower. When the Mortgage matures, you can then make a one-time payment to repay a slightly larger portion of the Mortgage if needed.
Mandatory amortization refers to the contractually required repayment of a portion of the Mortgage. In Switzerland, the so-called second Mortgage on owner-occupied residential property must generally be reduced to approximately two-thirds of the property’s value within 15 years or by the time of retirement. Mandatory amortization can be achieved either directly by repaying the Mortgage or indirectly through Pillar 3a. It serves to reduce the long-term risk for mortgage lenders and property owners.
Tax Optimization
Indirect Amortization
With indirect amortization, your mortgage remains unchanged. Instead, you make contributions to a retirement savings account (usually a Pillar 3a account), which is pledged as collateral in favor of the bank.
Benefits
- Tax savings through contributions to Pillar 3a
- Higher mortgage interest remains tax-deductible (through 2028)
- Greater flexibility in building wealth
Disadvantages
- Mortgage rates remain consistently high
- Interest costs remain the same
- Capital is tied up
Visualization
Saving with returns for Amortization
Lukrativ
When is indirect amortization worthwhile?
Indirect amortization is particularly interesting when:
- You can benefit significantly from higher debt for tax purposes
- You want to build long-term wealth
- From a financial perspective, you would no longer be able to make additional contributions to Pillar 3a beyond the Amortization payments
In practice, direct amortization is often the better solution overall. However, because indirect amortization is more lucrative for many financial institutions and “so-called” independent advisors, it is still frequently recommended.
Pros and Cons
What You Need to Know
Direct Amortization
Indirect Amortization
Caution
Indirectly linked to Life insurance
Indirect amortization via a is often recommended. It is not uncommon for significantly better mortgage interest rates to be offered, provided that the Mortgage is amortized indirectly through a life insurance policy.
Despite better interest rates, this is often not the best option because:
- High life insurance costs are incurred
- There is little flexibility
- often yield only low returns
In practice, low-cost Pillar 3a solutions (securities or accounts) offered by a bank are usually the better choice. Don’t be fooled by interest rate reductions.
Common Mistakes When Taking Out a Mortgage
Fixed-rate mortgage with no repayment penalty—the best of both worlds.
Don’t Underestimate It
Liquidity Planning for Retirement
Many homeowners aim to secure the lowest possible Mortgage as quickly as possible. They pay off the Mortgage using their entire savings. At first glance, this seems like a safe strategy, because debt is commonly viewed as something “negative.” However, it’s important to keep an eye on liquidity as well.
A common mistake is to pay down too much of the Mortgage and keep too little in liquid assets. The money is then tied up in the property, and it is often difficult to increase the Mortgage amount later on.
Besonders im Alter kann das kritisch werden. Mehr dazu hier: Hypothek amortisieren und Pensionierung
Mortgages and Retirement
Frequently Asked Questions
Answers on direct and indirect Amortization
With direct amortization, the mortgage is repaid on an ongoing basis.
With indirect amortization, the mortgage remains in place, and the money is paid, for example, into a Column 3a account and pledged in favor of the mortgage lender.
In many cases, no. The reasons for this are high costs, limited flexibility, and often a lower return.
In many cases, a standard Column 3a (account or securities solution) is the better option. If necessary, risk can also be covered through a standalone .
Eine Risikoversicherung schützt die finanzielle Situation einer Familie oder eines Immobilienbesitzers bei Ereignissen wie zum Beispiel Tod oder Erwerbsunfähigkeit. Im Gegensatz zu einer klassischen gemischten Lebensversicherung wird kein Sparguthaben aufgebaut. Die Versicherung zahlt nur im versicherten Ereignisfall eine vereinbarte Leistung aus. Gemischte Lebensversicherungen sind oft teuer und intransparent, während reine Risikoversicherungen transparent und kosteneffizient sind. Viele Hypothekenvermittler verdienen viel Geld damit, ihren Kunden eine indirekte Amortisation zu empfehlen und gleichzeitig eine gemischte Lebensversicherung «zu verkaufen».
You agree to make regular contributions to your Pillar 3a account. The balance is pledged in favor of the bank and will later be used to repay the Mortgage.
It is possible to switch, but it often involves a lot of effort, depending on the Mortgage lender, and usually incurs costs during the term of the contract. Therefore, the decision should be carefully considered.
The so-called second mortgage—the portion exceeding approximately 65% of the Loan-to-value ratio—must be paid off within 15 years or by the time of retirement for owner-occupied properties (mandatory amortization).
Amortization can occur either directly or indirectly. In the case of indirect amortization: Certain mortgage lenders re-appraise the property at the end of the Mortgage term. If the property’s value has risen significantly, the funds saved through indirect amortization may not have to be used to repay the Mortgage, depending on the overall situation.
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