Direct amortization: understanding its impact when buying real estate in Switzerland
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When buying real estate in Switzerland, the question of the mode of amortization is unavoidable. Two options are available: direct amortization or indirect amortization. While the second is often recommended for tax reasons, the first can be a more transparent and suitable solution depending on your situation.
What is direct amortization?
Direct amortization refers to the fact that a buyer repays each year a part of the borrowed capital (the mortgage debt). Concretely, this means that the debt decreases progressively over time, just like the mortgage interest to be paid.
Less debt = less interest = lower financial charges.
What are the tax consequences?
In Switzerland, mortgage interest is deductible from taxable income. When you opt for direct amortization, you therefore reduce your interest… which decreases your tax deductions. Result: your taxable income increases, and so do your taxes.
This is the main disadvantage of this method, especially in a context where income taxation can be significant depending on your canton of residence.
Comparison: direct vs. indirect amortization
| Criterion | Direct amortization | Indirect amortization |
| Repayment of capital | Yes, the capital decreases each year | No, the debt remains constant |
| Tax deduction of interest | Decreases over time | Maximized since the debt does not decrease |
| Taxation | Taxable income increases over the years | Taxable income stable or lower |
| Financial management | Simplicity and clear view of the debt | Tax optimization via a tied 3rd pillar |
When to choose direct amortization?
Direct amortization is often chosen by buyers who:
- wish to repay their debt quickly to free themselves from a loan
- have comfortable incomes, making the tax deduction less strategic
- are looking for a simple solution without any link to a savings product (tied 3rd pillar)
- want to reduce their debt ratio in the long term (for another real estate project, for example)
At FGP Swiss & Alps, we support many buyers, Swiss or foreign, in their real estate financing in Switzerland. The choice between direct and indirect amortization is an integral part of the wealth strategy we build with you.
Each profile is unique: our role is to evaluate the right balance between taxation, savings capacity, and long-term objectives, while taking into account cantonal specificities (Geneva, Vaud, Valais, etc.).
FAQ – Direct amortization in Switzerland
Can I change method during the loan?
Yes, but it depends on the conditions of your financial institution. Tax advice is recommended.
Is direct amortization mandatory?
No, but an amortization (direct or indirect) is required if your debt exceeds 66% of the property’s value.
What is the duration of amortization?
Generally, the debt must be reduced to two-thirds of the property’s value within 15 years.
And if I prefer to optimize my taxes?
In this case, indirect amortization via a 3rd pillar is often preferable.
What types of properties are concerned?
All: main residence, secondary residence, or rental investment.
