When it makes sense to reduce the mortgage – and what to consider.
Posted today at 5:45 am—
Smaller Hypo? Gladly, but not at any price! With amortization, the provision should not be weakened.
Illustration: Christina Baeriswyl
We are a family with grown children and we wonder if it doesn’t make sense for us to reduce our mortgage burden. My retirement provision is quite well structured; It looks completely different with my wife, especially since she is self-employed. And the mortgage burden is quite high. We’ll see a problem if something happens to me. In addition, we now earn less together than a few years ago. I still have life insurance. Our idea: We will reduce the hypolastics with my vested benefits account because I still have a PF. In this way we reduce our mortgage debt and our house remains affordable even with less income. How do you see it Readers question from CF
In your questions you address different problem areas. First of all, on the question of a mortgage amortization: This has the advantage that the house is more affordable even with falling income and you have to pay the bank less interest. Mortgage rates are currently extremely low and will likely remain so for some time to come. Still, if you have a lower mortgage, you will have to hand less to the bank and have that money available for other purposes. If you have enough money on the side, I would reduce a mortgage, especially since you write me that your mortgage is quite high.
At the moment you and your wife are still working. Later in old age after retirement, a high mortgage can become a problem because it may no longer be affordable with the pension income. If you make a partial amortization, however, the tax deduction is also reduced because you pay less debt interest. In addition, you would have to pay tax on the money that you need from the vested benefits account for the use of owner-occupied residential property.
The fact is that with the advance withdrawal of vested benefits for owner-occupied residential property, you worsen your pension.
Now, however, it is important to address the second important problem area, which you also mention in your question, namely prevention. I understand from your information that you are provided for by your pension fund and that you have a well-filled pillar 3a. The fact is, however, that with the advance withdrawal of vested benefits for owner-occupied home you are still worsening your pension. According to your information, your wife’s provision is insufficient. This means that you should actually also strengthen your wife’s provisions. However, you do not do this with the partial amortization of the mortgage.
So I would think about how you can work together to improve your wife’s pension. This seems to me to be very important regardless of the risk of death that you also mentioned. The positive thing is that you have life insurance that your wife would partially cover in the event of your death. If you want to make sure that if you die, your wife doesn’t have to sell the house because she has to pay off the adult children, I would put the children on the compulsory portion in a will and accordingly prefer your wife in inheritance. You should also check whether you would like to conclude an inheritance contract with your adult children in which they waive or defer the inheritance in favor of your wife. Or you could stipulate a right to use the house for yourself and your wife.
In my opinion, nothing speaks against a partial amortization of your high mortgage. I think that makes sense. Nevertheless, I recommend that you carefully examine your pension situation and your estate arrangement with specialists and, in particular, specifically strengthen your wife’s pension, which would also bring you considerable tax advantages over the years.