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Mortgages in retirement. Our tips.
Clarify affordability with your mortgage provider at an early stage.
It’s advisable to clarify the long-term affordability of your mortgage with a mortgage specialist from age 50 at the latest. This way, you can avoid possible problems with financing in old age. It’s common for income to decrease significantly as we enter retirement age, which can lead to problems with mortgage affordability. This usually means that only a partial amortisation of the mortgage will help. The earlier you recognise this, the more time you have to save the corresponding amount. If you realise too late or if the requested repayment amount is too high, in the worst case scenario you will be required to sell your home. Retirement and pension planning help to secure long-term affordability and establish an amortisation strategy.
Shorter mortgage terms make sense in old age.
A shorter mortgage term in old age can be sensible in terms of reducing debt in good time before retirement. The quicker the mortgage is paid off, the lower the interest payments and the monthly outgoing are by the time you retire. Reducing the term can help homeowners reduce their financial burden and ensure that their mortgage remains affordable once they reach retirement age and their income decreases. This provides protection against financial difficulties and enables homeowners to stay in their homes into old age without having to contend with high monthly costs. It can also increase flexibility should the need for a change in living situation arise at short notice.
Tax implications to note when repaying a mortgage.
It’s also important to note the tax implications involved in repaying a mortgage. In Switzerland, interest on mortgages is tax-deductible. When a mortgage is completely amortised, this interest is no longer payable, which can lead to a higher tax burden. As well as this, increases in equity can also mean that mortgage repayments can influence taxable assets. As a result, it’s advisable to take into account these tax implications when planning amortisation and to speak to a tax adviser if necessary.
What others wanted to know.
Our mortgage experts give an insight into a selection of the most frequently asked questions. Submit your own question. We will be happy to help you.
Chantal B. (59), Langenthal
Should I repay my mortgage after entering retirement?
Whether or not you should repay your mortgage after reaching retirement age depends on multiple factors:
- Financial situation: If you have enough equity or pension savings (e.g. 2nd or 3rd pillar), repayment can make sense in terms of reducing monthly outgoings and ensuring financial freedom in retirement.
- Interest rate: If the interest rate on your mortgage is relatively high, it can make sense from a financial point of view to pay off the debt earlier in order to save on interest costs. With lower interest rates, deciding to invest capital in other ways could prove more lucrative.
- Tax consequences: Interest on mortgages is tax-deductible in Switzerland. Early repayment could increase your tax burden as you will no longer be able to deduct any interest. It’s worth considering taking tax advice in this regard.
- Liquidity: If you are dependent on sufficient liquidity in retirement in order to cover your living expenses, it can be beneficial not to pay back your mortgage in full. Maintaining your mortgage and investing your capital elsewhere could help ensure more financial flexibility.
- Risk management: A full repayment reduces your risk as it means you are debt-free. This can provide more security and flexibility in retirement, which is precisely when your income starts to decline.
It’s advisable to make your decision based on your personal financial situation, interest costs, tax-related issues and your desired financial flexibility. A personal consultation with a financial expert or tax adviser could help you find the best solution.
Christian S. (61), Montreux
Is it still possible to increase your mortgage after retirement?
Increasing your mortgage after retirement is possible in principle; however, it’s more difficult to do once you are no longer in employment. Mortgage providers assess affordability based on income, which, for a pensioner, is generally lower than that of someone in employment. An increase may be rejected if a person’s pension income is low, especially if their financial situation does not appear secure.
Markus M. (60), St. Gallen
Is it possible to take out a new mortgage after retirement?
In principle, it is possible to take out a new mortgage after retirement, but there are certain challenges. Mortgage providers assess in particular the affordability of the mortgage with regard to reduced income in retirement. If a pension and other income are sufficient in guaranteeing long-term affordability, a mortgage can be taken out even once a person reaches pension age. However, older borrowers often have to deal with more stringent requirements.
Hans H. (64), Schlieren
Do the same affordability requirements apply to those of retirement age?
In retirement too, the imputed costs of the mortgage must not be higher than a third of a person’s income in order for affordability requirements to be met. This means that interest on the mortgage, calculated at five percent, plus maintenance and utility costs as a percentage of the property value may amount to a maximum of one third of a person’s income. However, income relevant for affordability after retirement is a different matter. Instead of a salary and any bonuses, pension income from the first pillar (OASI) and second pillar (occupational pension fund) are classed as income for calculation purposes.
Luca Philipp S. (62), Bassersdorf
In terms of my mortgage, does it make a difference whether I cash out my pension fund or take it in the form of a retirement pension?
Yes. If a capital withdrawal is made from a pension fund, the mortgage lender will convert the capital into a theoretical pension using a conversion rate or will divide it by the number of expected years of life based on a mortality table. The rates used for converting the capital into pension income differ from lender to lender. They range from three to eight percent of available assets, with the majority of providers using a conversion rate of three to five percent. It’s also sometimes the case that different conversion rates are used for different age groups. Retirement assets worth CHF 500,000 are therefore deemed by most providers to be income relevant for affordability of between CHF 15,00 and CHF 25,000 per year.
Chantal B. (59), Langenthal
Should I repay my mortgage after entering retirement?
Whether or not you should repay your mortgage after reaching retirement age depends on multiple factors:
- Financial situation: If you have enough equity or pension savings (e.g. 2nd or 3rd pillar), repayment can make sense in terms of reducing monthly outgoings and ensuring financial freedom in retirement.
- Interest rate: If the interest rate on your mortgage is relatively high, it can make sense from a financial point of view to pay off the debt earlier in order to save on interest costs. With lower interest rates, deciding to invest capital in other ways could prove more lucrative.
- Tax consequences: Interest on mortgages is tax-deductible in Switzerland. Early repayment could increase your tax burden as you will no longer be able to deduct any interest. It’s worth considering taking tax advice in this regard.
- Liquidity: If you are dependent on sufficient liquidity in retirement in order to cover your living expenses, it can be beneficial not to pay back your mortgage in full. Maintaining your mortgage and investing your capital elsewhere could help ensure more financial flexibility.
- Risk management: A full repayment reduces your risk as it means you are debt-free. This can provide more security and flexibility in retirement, which is precisely when your income starts to decline.
It’s advisable to make your decision based on your personal financial situation, interest costs, tax-related issues and your desired financial flexibility. A personal consultation with a financial expert or tax adviser could help you find the best solution.
Christian S. (61), Montreux
Is it still possible to increase your mortgage after retirement?
Increasing your mortgage after retirement is possible in principle; however, it’s more difficult to do once you are no longer in employment. Mortgage providers assess affordability based on income, which, for a pensioner, is generally lower than that of someone in employment. An increase may be rejected if a person’s pension income is low, especially if their financial situation does not appear secure.
Markus M. (60), St. Gallen
Is it possible to take out a new mortgage after retirement?
In principle, it is possible to take out a new mortgage after retirement, but there are certain challenges. Mortgage providers assess in particular the affordability of the mortgage with regard to reduced income in retirement. If a pension and other income are sufficient in guaranteeing long-term affordability, a mortgage can be taken out even once a person reaches pension age. However, older borrowers often have to deal with more stringent requirements.
Hans H. (64), Schlieren
Do the same affordability requirements apply to those of retirement age?
In retirement too, the imputed costs of the mortgage must not be higher than a third of a person’s income in order for affordability requirements to be met. This means that interest on the mortgage, calculated at five percent, plus maintenance and utility costs as a percentage of the property value may amount to a maximum of one third of a person’s income. However, income relevant for affordability after retirement is a different matter. Instead of a salary and any bonuses, pension income from the first pillar (OASI) and second pillar (occupational pension fund) are classed as income for calculation purposes.
Luca Philipp S. (62), Bassersdorf
In terms of my mortgage, does it make a difference whether I cash out my pension fund or take it in the form of a retirement pension?
Yes. If a capital withdrawal is made from a pension fund, the mortgage lender will convert the capital into a theoretical pension using a conversion rate or will divide it by the number of expected years of life based on a mortality table. The rates used for converting the capital into pension income differ from lender to lender. They range from three to eight percent of available assets, with the majority of providers using a conversion rate of three to five percent. It’s also sometimes the case that different conversion rates are used for different age groups. Retirement assets worth CHF 500,000 are therefore deemed by most providers to be income relevant for affordability of between CHF 15,00 and CHF 25,000 per year.
