The base rate will be increased again by 0.25% - Should I amortise the mortgage additionally now?

Although the SNB's interest rate steps are becoming smaller, further interest rate increases cannot be ruled out in the course of the year. Now the question often comes up: "Should I use my savings to additionally pay off the mortgage?

As is so often the case, this question cannot be answered with a blanket yes or no. In principle, the idea of reducing debt is laudable. First, however, it must be understood what the advantages and disadvantages are, or what effects it could have. The following questions can help in the preliminary stages:

  • How high is the loan-to-value ratio (ratio of Mortgage and the value of the property)?
  • Do I perhaps need the money for other expenses in the coming years?
  • Did I use 2nd pillar funds when I bought at the time and could I repatriate them?
  • Does my bank allow extraordinary amortisations or does a tranche expire soon?
  • Is the time even right for a purchase into the 2nd pillar and how good is my PF?
  • Could the house do with a refurbishment or two?

Depending on age, financial situation and needs, there are, for example, the following alternatives to amortising the mortgage:

Repayment of the advance withdrawal and purchase into the pension fund

If you made an early withdrawal from your pension fund when you bought your own home, you could, instead of having to pay the Mortgage to amortise these funds, repatriate them and pay back any Pension gaps downsize.

Unlike with purchases, you cannot claim the repayment for tax purposes, but you can claim back the taxes for the capital withdrawal and use them for the third pillar in the same year, for example. As soon as all advance withdrawals have been repaid, purchases can be made again, which can be deducted for tax purposes in the same year. In the case of married couples with children, it is also worthwhile to check the PF of the person who may have worked for several years with a reduced workload. However, it is advisable to check the purchase or repayment with a financial planner, as the conditions are not suitable everywhere.

Renovations to the house

Are there any immediate Renovations to the propertywhich need to be done, this would also be a feasible way. Optimally spread over several years, you can maintain the value of the property, deduct the costs for the renovation for tax purposes and have renewed your own four walls. Value-enhancing investments cannot be ruled out either, as these can also be deducted when the property is sold.

Invest

No purchase potential in the pension fund or you do not want to exhaust this, the house has already been renovated and liquid assets are sufficient, which are very unlikely to be needed in the next few years? Then another option to a savings account would be to invest in the broad market. As described in the article "Saving for children, we have compared several amounts. The respective one-time deposits without further deposits as well as with monthly payments of CHF 200.

Due to the investment horizon of 10 years+, a dynamic strategy was chosen for the calculation, with approximately 50% shares, 40% bonds and the rest real estate, money market and commodities. Taxes or fees were not taken into account. However, a strategy with a higher share of equities would also be justifiable for a longer period.

Even for conservative, very risk-conscious investors or for a shorter duration of up to 5 years, there is the possibility of lowering their mortgage interest expense. Due to the rise in interest rates in the meantime, one can consider a so-called "interest arbitrage". Some Swiss banks are currently offering attractive interest rates on cash bonds or time deposit accounts, which also have a fixed interest rate.

The following example:

You took out a 10-year fixed-rate mortgage at 1 % 5 years ago, also with a remaining term of 5 years.

If you invest in a cash bond of CHF 50,000.00 over 5 years at currently 2.25 %, you will receive an interest credit of CHF 5,625. Your interest expense for the mortgage amounts to CHF 2,500 over the same period. This results in an addition to your remaining interest expense for the mortgage of CHF 3,125. After your fixed-rate mortgage and your cash bond have expired, you can check the current situation and decide whether a direct amortisation of the mortgage should be considered.

(Source interest rate: Moneyland, June 2023)

Either way, mortgage amortisation is an important part of any financial and retirement planning and should be planned early with an expert.

How your financial planner can help you

Your financial planner is able to draw your attention to various aspects, including real estate ownership, in the sense of holistic planning. They will show you possible solutions based on your personal situation and can accompany you during the implementation.

You can find more information on mortgage advice or financial planning at www.finberg.ch.

FINBERG Compass

Interests