All you need to know about mortgage amortization


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Before taking out a mortgage, it's worth finding out about amortization. In Switzerland, you can take advantage of several terms, depending on your project and your situation. We take a look at your obligations in this area.

What is mortgage amortization?

Mortgage amortization is simply the repayment of the loan. A mortgage is considered amortized when it is repaid in full. It's vital to choose the right type of amortization. It must correspond to your profile and may also enable you to carry out tax optimization operations.

Types of amortization

Direct amortization

Direct amortization is the most common format and the one most familiar to private individuals. In practical terms, you regularly repay a fixed amount corresponding to a portion of the capital borrowed. You reduce your debt and pay your interest on a regular basis.
This means you can reduce your mortgage debt. On the other hand, if you choose this option, you will only be able to contribute to your private pension provision if your financial situation allows.

Indirect amortization

With the indirect amortization solution, you do not repay your debt directly. The amortization amount can be used to contribute to your private pension provision. So it's your Pillar 3a that serves as collateral for the bank.
You benefit from the deduction of mortgage rates from your taxes. You can also take advantage of the interest rate associated with your private pension provision to make your money grow.
Let's stress, however, that your mortgage debt does not decrease. What's more, if the interest rate on your private investments is lower than that paid on your mortgage, you may lose out.

Voluntary and compulsory investment

Most of the time, you need two mortgages to be able to finance a property. These are known as 1st and 2nd mortgages. The first is secured by pledging the property. The second must be amortized.

Voluntary amortization

As you can see, there is no obligation to repay the first mortgage. This can amount to up to 65% of the total value of the investment.
There are, however, certain tax advantages to retaining this debt. In particular, it is deductible from your wealth, to reduce your tax liability. It also gives you the opportunity to invest your money in other ways.

The amortization obligation

The amortization obligation exists only on the 2nd mortgage. It generally covers between 10% and 15% of the total debt. You are obliged to repay it, within 15 years, regardless of the amortization method you choose.

Advice on early amortization

If your financial situation changes, you can also opt for early amortization. This involves repaying your debt before the end of the contract. However, before you do so, check that this operation does not put you at a tax disadvantage.
At the time of your subscription, you may have been informed of any early repayment penalties. You should consult them, to know the financial impact of this decision.

How to choose your amortization?

Compare offers

When choosing your mortgage, it's absolutely essential to put offers from several banks into competition. This will enable you not only to compare rates, but also the conditions under which the loan is granted.
For example, one bank may offer you indirect amortization, while others favor direct amortization. And don't hesitate to take a look at the fees involved in early amortization.

Call on an advisor

As you can see, the amortization of your mortgage must take into account:
  • Your budget
  • Your savings ambitions
  • Possible tax optimization
Taking into account your profile and each of these data can be complicated from a private individual's point of view. That's why it's a good idea to enlist the help of financial professionals who can study your case in depth. In the long term, you can make valuable savings and even contribute to your private pension provision.
If you'd like more information on the possibilities available to you, please don't hesitate to contact us. As experts, we can guide you towards your choice of mortgage and negotiate the best rates for you.
Valery Chantepy
Updated on: 31.01.2024Written by Valery ChantepyHead of mortgage department at Comparea
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