Amortizing your mortgage: important information at a glance
You must pay off part of your mortgage in the form of direct or indirect amortization. Comparis explains which option makes sense and what obligations apply.
14.08.2025
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1. What does it mean to amortize a mortgage?
In mortgage terms, “amortization“ means the repayment of mortgage debt.
When financing your property, you can borrow up to 80% of the purchase price in the form of a mortgage. This is usually split into a first and second mortgage.
The first mortgage amounts to no more than two thirds of the market value of a property.
The second mortgage covers the 65–80% of the market value not financed by the first mortgage (approx. 15%).
You must pay the remaining 20% of the purchase price as a down payment from your own funds. At least half of this amount must come from your savings. You can cover the rest by making an advance withdrawal from your occupational pension or pillar 3a.
2. When do I have to amortize?
In general, the following applies to amortizing a mortgage in Switzerland:
| Mortgage | Loan-to-value ratio | Amortization requirement | Amortization period |
|---|---|---|---|
| First mortgage | Up to approx. 65% | No | None |
| Second mortgage | Approx. 65–80% | Yes | Within 15 years or by retirement (whichever comes first) |
The table shows that you do not necessarily have to amortize the first mortgage, but the second must be paid off within 15 years or by retirement.
To pay off your mortgage, you have the option of direct or indirect amortization.
3. What is direct amortization?
With direct amortization, you repay the mortgage loan directly to the lender on a regular basis (usually quarterly). Each payment made reduces the mortgage debt as well as the amount of mortgage interest owed.
Pros and cons of direct amortization
Pros
Mortgage debt steadily decreases
The interest owed declines continuously while the interest rate remains the same.
Psychological benefit can be felt with ever-lower debt.
Cons
Tax burden rises steadily.
Tax-deductible loan interest declines continuously while the interest rate remains the same.
Simultaneous amortization and pillar 3a contributions can be a financial challenge.
Calculating direct amortization: example
The example considers the purchase of a single-family home with a purchase price of 1,000,000 francs. Financing is obtained according to the usual requirements of Swiss mortgage lenders:
Down payment (20%): CHF 200,000
First mortgage (65%): CHF 650,000 (mortgage interest: 1.5%)
Second mortgage (15%): CHF 150,000 (mortgage interest: 2%)
Here is an overview of the costs (in Swiss francs) for amortizing the mortgage over 15 years:
| Year | Interest for first mortgage | Interest for second mortgage | Amortization of the second mortgage | Annual costs | Remaining mortgage debt for the second mortgage |
|---|---|---|---|---|---|
| 1 | 9,750 | 3,000 | 10,000 | 22,750 | 140,000 |
| 2 | 9,750 | 2,800 | 10,000 | 22,550 | 130,000 |
| 3 | 9,750 | 2,600 | 10,000 | 22,350 | 120,000 |
| 4 | 9,750 | 2,400 | 10,000 | 22,150 | 110,000 |
| 5 | 9,750 | 2,200 | 10,000 | 21,950 | 100,000 |
| 15 | 9,750 | 200 | 10,000 | 19,950 | 0 |
The example illustrates the continuously declining interest owed despite the constant interest rate.
When is direct amortization worthwhile?
Direct amortization is suitable for borrowers who feel more comfortable with a lower mortgage debt. It also increases their disposable income.
But beware: amortizing a mortgage increases your tax burden. The less debt and mortgage interest you have, the smaller the amount you can deduct from your taxable income. Plus, there is still the imputed rental value, which must be taxed as fictitious income. This can increase your tax burden even further.
Comparis tip
Have you made an early withdrawal from your pension to finance a property? If so, you should first pay back the missing amount in order to benefit from the full pension cover once again. Only then should you begin voluntarily amortizing your mortgage.
4. What is indirect amortization?
With indirect amortization, your mortgage debts remain unchanged for the entire term. You do not transfer the payments directly to the mortgage lender.
Instead, you save them in a pension account, a pension custody account or in a pillar 3a insurance policy. The mortgage is only paid off when the 3a plan is closed.
Can I deduct my mortgage repayments from my taxable income?
You can fully deduct the amortization payments into the restricted pension plan from your taxable income. A reduced tax rate applies when you draw a pension – at the latest when you reach retirement age.
Pros and cons of indirect amortization
Pros
The money to repay the mortgage is saved in a tax-privileged pillar 3a plan.
Capital in the pillar 3a account accrues interest at a preferential rate.
You can deduct the higher mortgage interest from your taxable income for longer.
With indirect amortization via life insurance, the mortgage is covered by the sum insured in the event of the policyholder’s death.
Cons
Mortgage debt remains the same while savings are deposited.
Price fluctuations in pillar 3a securities plans may result in short-term losses. In the long term, however, profits are usually to be expected.
Interest payments remain high.
When is indirect amortization worthwhile?
Indirect amortization via pillar 3a is suitable for people who would otherwise be unable to afford the tax-privileged third pillar. Indirect amortization through life insurance as part of a tied pillar 3a pension plan can be attractive in tax terms and is particularly interesting for families.
Not sure whether direct or indirect amortization is better suited to your life situation? Our mortgage partner HypoPlus can help you find the right financing solution.
5. Is it worth paying off more than necessary?
It’s up to you whether or not you pay down the first mortgage. This might make it easier to finance the property in old age. This is because the higher the mortgage, the more likely a lender is to demand repayments at short notice if your income situation worsens.
If you voluntarily amortize your mortgage, your tax deductions will also decrease. This is because you can deduct less mortgage interest from your taxable income. You should also note that the money you invest in amortization is no longer available for other purposes.
Charges for amortizing the first mortgage
In the case of a fixed-rate mortgage, you can only amortize free of charge at the end of the term. You will be charged a penalty for repaying it early, unless your contract makes provision for amortization on an annual basis.
This article was first published on 07.10.2010
