Should you pay off your mortgage in Switzerland?

In Switzerland, it is important to distinguish between the obligation to amortize (partially repay) a portion of the mortgage and the act of paying off the mortgage debt in full.

Amortizing part of the loan is generally mandatory when the financing exceeds approximately two-thirds of the property's lending value. Conversely, paying off the mortgage debt entirely is usually a matter of financial and wealth management strategy.

As a general rule:

• 1st rank: up to approximately 65% of the property's lending value → no general obligation to amortize;
• 2nd rank: between approximately 65% and 80% → the mortgage debt must, in principle, be amortized to bring the financing down to approximately 65% of the lending value within a maximum of 15 years, or before retirement age, depending on applicable conditions;
• Once the level of approximately 65% is reached, there is, in principle, no further obligation to amortize the mortgage loan.

Example

Property value: CHF 2,000,000
Mortgage loan: CHF 1,200,000 (i.e., 60%)

→ The mortgage loan is already below approximately 65% of the lending value.

→ In principle, there is no obligation for further amortization.

However, a distinction should be made between market value and lending value, as the latter may be determined differently by the bank.

It may make financial sense to maintain a mortgage debt equivalent to approximately 50% to 65% of the property's value rather than paying it off completely. Several factors may be considered:

• capital remains available for other investments;
• leverage can be used to finance further real estate acquisitions;
• liquidity is not entirely tied up in the property;
• the overall portfolio retains greater liquidity.

Conversely, mortgage interest payments continue, and maintaining debt entails financial risk, particularly if interest rates rise.

Tax implications must also be considered. The deductibility of mortgage interest for owner-occupiers will change starting January 1, 2029, as part of the reform regarding the taxation of home ownership and the abolition of imputed rental value.

The situation may differ for an investment property.

Banks generally apply specific financing criteria based on the type of property, its yield value, rental income, and repayment capacity.

Minimum rules typically require the debt to be reduced to approximately two-thirds of the lending value within 15 years, subject to specific bank requirements and the type of financing.

Consequently, the full repayment of a mortgage is generally not mandatory. It is common to maintain a first rank mortgage over the long term, especially when keeping the debt offers financial or wealth-related advantages.

Once the financing has been reduced to approximately 65% of the lending value, there is generally no longer an obligation to amortize the loan.

The decision to voluntarily continue amortization or to maintain the debt then depends on the individual's financial, tax, and asset situation, as well as their investment objectives. Several questions can be considered:

• Could the available capital be invested to yield a return higher than the cost of the mortgage debt?
• Is debt reduction being prioritized for reasons of financial security and peace of mind?
• Is this an investment property where financial leverage can help boost the return on equity?
• What is the effective cost of the debt after accounting for tax implications?
• What level of debt aligns with the wealth management strategy and financial capacity?

However, one must compare returns after taxes and fees, and after accounting for risk. For example, a 4% return subject to the risk of capital loss is not economically equivalent to a guaranteed 1.5% saving on debt.

To determine whether it is better to repay a mortgage or retain the debt, it is useful to analyze the following separately:

1. mandatory amortization;
2. voluntary amortization;
3. capital available for new acquisitions;
4. net cost of debt after tax;
5. return on alternative investments;
6. acceptable level of risk and indebtedness;
7. long-term wealth management strategy.

In Switzerland, full repayment of mortgage debt is generally not mandatory. Once the financing has been reduced to approximately two-thirds of the pledged value, a first-ranking mortgage can, in principle, be maintained over the long term.

The choice between making additional repayments and retaining the debt—thereby freeing up capital for other investments—depends primarily on the cost of debt, taxation, the expected return on alternative investments, the risk level, and the wealth management strategy.