Mortgage Amortisation Switzerland: Direct or Indirect?

You've found your dream house or apartment, and the bank has approved the mortgage. Right in the middle comes a question few people expect: "Would you like to amortise directly or indirectly?" The advisor throws around a few terms, pillar 3a, pledge, tax deduction. You nod, because at some point you have to decide. Here's the thing: this decision stays with you for the next 15 years and has a real impact on your tax bill and your retirement savings.

The good news: the logic behind it isn't rocket science. And since the abolition of the imputed rental value (Eigenmietwert) was approved at the ballot box in 2025, the calculation has shifted noticeably, something most guides haven't caught up with yet. We'll show you how both options work, what they actually cost or save you, and which one fits your situation.

One note up front: this choice only concerns the part of your mortgage you have to repay anyway. It's not about whether you amortise, only about how. That's exactly why it's worth looking closely, because for the same effort, the two paths lead to noticeably different outcomes.

What amortisation actually means

To get a mortgage in Switzerland you need at least 20 percent equity, and at least half of that has to come from "hard" funds such as savings, an advance inheritance or a gift, not from your pension fund. The bank finances the remaining 80 percent of the property's market value through the mortgage, split into two tranches.

The first mortgage covers up to 66.67 percent (two thirds) of the market value. You generally never have to repay it, it can remain in place until you sell the property or for the rest of your life. The second mortgage, the portion between 66.67 and typically 80 percent, has to be repaid: within 15 years or by the time you retire, whichever comes first.

There are two ways to meet this mandatory amortisation, and they're what this article is about:

• Direct amortisation: You pay a fixed amount straight to the bank, usually quarterly or annually. Your mortgage debt shrinks step by step.
• Indirect amortisation: You pay the same amount into a pillar 3a account or policy instead, which you pledge to the bank. Your mortgage debt stays exactly the same for the whole term, while your pillar 3a balance grows.

Sounds like a technicality, but it's a decision with real consequences for your tax return and your retirement planning.

Why banks insist on this deadline at all: they want to make sure your mortgage stays affordable after you retire, once AHV and pension fund income replace your salary. The lower your debt at that point, the smaller the interest burden your then-lower income has to carry. This logic applies no matter which of the two options you choose.

Direct amortisation: simple and predictable

The direct option is the less complicated of the two. Every payment reduces your debt and, with it, the interest you'll pay in the future. With current fixed-rate mortgages running at roughly 1.2 to 1.9 percent (as of summer 2026, the SNB policy rate has held steady at 0.0 percent since June 2026), that adds up over 15 years. You'll also be debt-free on this portion of your mortgage at the end of the term, giving you more unencumbered equity in your home.

The downside: you can't deduct the amortisation payment itself from your taxes. And because your debt shrinks, the mortgage interest you can deduct shrinks with it year after year, which tends to push your tax bill up, at least until 2029 (more on that shortly).

Indirect amortisation: tax-efficient, but locked up

With the indirect option, your mortgage debt stays exactly as high throughout, but until now you've benefited from two tax deductions at once: the full mortgage interest (since the debt never shrinks) and the amount you pay into pillar 3a. On top of that, your 3a balance grows, either in an interest-bearing account or, if you invest it in securities, potentially at a return well above what your mortgage interest costs you.

The catch: the money is locked up. You generally can't access it before retirement, unless you emigrate, become self-employed, or use it again to finance owner-occupied property. You're also pledging the account to the bank, which limits your flexibility further. Some pillar 3a products are bundled with risk insurance, which eats into your returns, check this carefully before signing up and compare it against a pure savings solution like VIAC, finpension or frankly.

One detail that gets lost in most advisory meetings: because pillar 3a payouts are taxed separately from your other income and at a degressive rate, it's worth spreading the capital you build up for indirect amortisation across two or three separate 3a accounts instead of one. That way you can close the accounts in stages over several years when you need the money, and each individual payout stays in a lower tax bracket. The effect is noticeable on larger amounts and costs you nothing beyond a bit of extra paperwork.

The worked example

Let's take a property worth CHF 800,000, financed with 20 percent equity (CHF 160,000) and a CHF 640,000 mortgage (80 percent loan-to-value).

CHF 7,111 a year sits just under the 2026 pillar 3a maximum for employees with a pension fund (CHF 7,258). If your required amortisation were higher than the 3a maximum, you'd either split it across two 3a accounts or combine part direct with part indirect amortisation. Many banks explicitly allow this combination, more on that in the practical tip below.

Assuming a marginal tax rate of 30 percent (federal, cantonal and communal combined, this varies by individual), the extra pillar 3a deduction under the indirect option saves you around CHF 2,130 in taxes per year, or roughly CHF 32,000 cumulatively over 15 years. On top of that comes the preserved mortgage interest deduction, which shrinks year by year under the direct option. At the end of the 15 years, the indirect path also leaves you with a pillar 3a balance of at least CHF 106,667 (nominal), plus any returns if the money was invested in securities.

These figures are a worked example, not tax or investment advice. Your actual marginal tax rate, your mortgage terms and the return on your 3a portfolio depend on your personal situation and your canton of residence. For a binding calculation, it's worth talking to your bank or a tax advisor. Use our mortgage calculator and pillar 3a calculator to run your own numbers.

The 2029 turning point: the imputed rental value reform changes the math

On 28 September 2025, Swiss voters approved the abolition of the imputed rental value (Eigenmietwert), with 57.7 percent in favour. The Federal Council has set the reform to take effect on 1 January 2029, with a transition period running through the end of 2028. For you as a homeowner, that means: from 2029, not only does the imputed rental value disappear as taxable income, but in exchange, the deduction for mortgage interest on owner-occupied property largely disappears too, with the exception of a time-limited rule for first-time buyers and for rented or leased properties.

And this is exactly where the calculation above starts to wobble. The biggest tax advantage of indirect amortisation, the full and lasting preservation of the mortgage interest deduction, largely disappears for most homeowners from 2029 onward. What's left is "just" the deduction for your 3a contribution itself, which you'd have anyway whether you use your 3a account for amortisation or simply pay into it for retirement as normal.

In practice, that means: if you start a 15-year amortisation schedule today, it will run until around 2041, well past the reform date. For the first three to four years you still benefit from today's system, after that the balance shifts noticeably in favour of the direct option, at least from a tax perspective. How individual cantons will flesh out the transition rules is still partly open. Raise this actively with your cantonal tax office or your bank before committing.

Which option fits you

There's no one-size-fits-all answer, but a few questions can help you decide.

Would you max out your pillar 3a anyway? If so, there's little reason not to go indirect. You get the tax benefit essentially for free, since the money would have gone into retirement savings regardless, it's just tied to your mortgage via the pledge.

How does your remaining amortisation term compare to 2029? The closer your remaining term gets to, or extends past, the reform date, the less weight the classic tax argument for indirect carries. If you only have 5 years left today, you still benefit almost fully from the current system.

Are you comfortable with locked-up, pledged assets? If flexibility matters more to you than the last tax franc, say because you expect a lot of change professionally or personally in the coming years, direct is the more relaxed choice.

How close are you to retirement? The closer you are, the more direct amortisation makes sense, so your debt shrinks before your income drops at retirement and affordability gets tighter.

Are you willing to hold your pillar 3a balance in securities rather than a savings account? Only then does indirect amortisation deliver its second potential advantage, a higher expected return over the long run. On a plain 3a savings account, that advantage mostly evaporates, rates there currently sit barely above zero.

Practical tip: combine both

You don't have to choose all or nothing. Most banks let you split the second mortgage, for example half direct and half indirect, or spread the indirect portion across two separate 3a accounts with different investment strategies. Concretely, in our example that means: CHF 3,556 a year goes straight to the bank, CHF 3,555 into a pledged pillar 3a account. This reduces the amount of locked-up capital while still securing part of the tax benefit and the potential 3a return. Raise this actively in your mortgage consultation, banks rarely suggest it on their own since the simpler option means less advisory work for them.

Bottom line

Direct or indirect amortisation isn't a matter of belief, it's a calculation that depends on your tax rate, your risk capacity and your time horizon, and one that the 2029 imputed rental value reform is shifting noticeably. Take ten minutes before your next meeting with the bank, run your own numbers through our mortgage calculator, and decide deliberately instead of out of habit. The 15 years this decision ties you to are worth it.