Pay off your mortgage or invest? The Swiss calculation
March 3, 2025
3 min read
arvy's Teaser: One of the most common questions in Switzerland: "I have CHF 100,000 spare. Should I pay down my mortgage or invest the money?" The answer isn't as simple as either camp claims. Here's the honest calculation — with numbers, tax effects, and the answer to when each option actually wins.
1.8%
Typical Swiss mortgage rate — before tax deduction
5–6%
Historical equity market return — not guaranteed
CHF 54,000
More over 15 years by investing vs. amortising (CHF 100k, 5% return)
The basic calculation: mortgage rate vs. expected return
The logic sounds simple: if your mortgage costs 1.8% and you can expect 5–6% in equity markets, investing wins. The difference of 3–4% per year is your gain.
But it's not that simple. Three factors complicate the calculation:
| Factor | Effect on "pay down" | Effect on "invest" |
|---|---|---|
| Tax deductibility | Less interest = less deduction = more taxes | Mortgage interest remains deductible |
| Wealth tax | Lower net wealth = less tax | Higher assets = more wealth tax |
| Risk | Guaranteed: interest saving is certain | Return is not guaranteed |
The calculation with concrete numbers
Scenario: CHF 100,000 available, mortgage CHF 600,000
Option A — Reduce mortgage to CHF 500,000:
Interest saving at 1.8% = CHF 1,800/year
Less interest deduction → extra taxes ~CHF 600/year
Net benefit: ~CHF 1,200/year (guaranteed)
Option B — Invest CHF 100,000:
Expected return at 5% = CHF 5,000/year
Wealth tax on CHF 100,000 ~CHF 200/year
Net benefit: ~CHF 4,800/year (expected, not guaranteed)
Difference over 15 years: Investing brings ~CHF 54,000 more at 5% return.
But: at only 2% return, the advantage would be only ~CHF 3,000.
When paying down wins
High mortgage rate (>3%): The guaranteed saving becomes more attractive than the uncertain return.
Close to retirement: Many banks require the mortgage to be reduced to 65% of the property value by retirement. If you're just above this, amortisation may be mandatory.
Low risk tolerance: If a portfolio drop of 20% stops you sleeping, the guaranteed interest saving is the better path. Sleep is worth more than 2% in return difference.
Already well invested, plenty of liquidity: If you already have substantial investments and an extra CHF 100,000, paying down can serve as diversification.
When investing wins
Low mortgage rate (<2%): The lower the rate, the greater the return difference in favour of investing.
Long time horizon (10+ years): The longer you stay invested, the more likely you are to realise the expected return.
High marginal tax rate: In high-tax cantons the mortgage interest deduction is more valuable — keeping the mortgage makes more tax sense.
Indirect amortisation via Pillar 3a: Instead of paying down the mortgage directly, you contribute to Pillar 3a, which serves as security for the bank. Benefit: 3a tax advantage + mortgage interest deduction remains intact.
The smart solution: do both
Most advisors present it as either/or. In practice, the best solution is often: combine both.
Example: CHF 100,000 available — the smart split
CHF 7,258 → Max out Pillar 3a (tax saving + indirect amortisation)
CHF 20,000 → Pension fund buy-in (tax saving + higher pension)
CHF 30,000 → Partial mortgage amortisation (reduces interest costs + improves affordability)
CHF 42,742 → Invest via savings plan over 12 months
Result: Tax-optimised, diversified, risk-conscious. No all-or-nothing.
"The question isn't 'mortgage or investing'. The question is: what's the smartest allocation for your situation?"
Frequently asked questions: Mortgage vs. investing in Switzerland
Should I pay down my Swiss mortgage or invest?
At a low mortgage rate (<2%) and with a 10+ year horizon, investing historically wins significantly (~3–4% more p.a.). But the optimal answer depends on your tax rate, risk tolerance, and retirement horizon — often a combination of both makes the most sense.
What is indirect amortisation via Pillar 3a in Switzerland?
Instead of paying down the mortgage directly, you contribute to Pillar 3a. This is pledged to the bank as security. Benefit: the mortgage interest deduction stays intact, you use the 3a tax advantage, and you amortise indirectly. A tax lever many Swiss homeowners overlook.
Do I have to reduce my Swiss mortgage before retirement?
Many banks require the mortgage to be reduced to 65% of the property value (sometimes 60%) by retirement — for affordability reasons. If you're close to retirement and slightly above this limit, amortisation may be required, not optional.
What are the tax effects of paying down a Swiss mortgage?
Swiss mortgage interest is deductible from taxable income. Paying down the mortgage reduces interest → less deduction → more taxes. At a marginal rate of 35% and CHF 1,800 in interest savings: roughly CHF 630 more in taxes per year. This tax effect often makes amortisation less attractive than it first appears.
Let's look at your situation together.
Mortgage, investing, 3a, pension fund buy-in — the best solution is individual. arvy helps you with free investing and Pillar 3a.
Start savings plan | Open Pillar 3a
Disclaimer: General information only. Mortgage rates, tax effects and expected returns are individual and canton-specific. arvy is an asset manager supervised by FINMA.
