Mortgage and Retirement in Switzerland: What to Do When You Approach AVS Age?
Retirement represents a pivotal moment for Swiss homeowners. The drop in income that typically accompanies retirement can complicate mortgage financing — and some homeowners find themselves in difficult situations.
The Challenge of Borrowing Capacity in Retirement
Swiss banks apply the stress rate test (5%) to assess your repayment capacity — and this test is based on your current income. In retirement, if your income (AVS + occupational pension + potentially pillar 3a) represents 60-70% of your final earnings, your theoretical capacity decreases proportionally.
Result: some homeowners are refused mortgage renewal by their bank at retirement, even though they have always repaid without issue.
Example of Affordability Calculation in Retirement
Let's take a homeowner with the following parameters:
- Property value: CHF 800,000
- Remaining mortgage: CHF 400,000
- Income before retirement: CHF 150,000/year
- Estimated retirement income (AVS + occupational pension): CHF 95,000/year
Before retirement:
- Mortgage costs (5% + 1% + 1%): CHF 32,000/year
- Ratio: 32,000 / 150,000 = 21% ✓ acceptable
In retirement:
- Same costs: CHF 32,000/year
- Ratio: 32,000 / 95,000 = 34% ✗ exceeds the 33% limit
Even though nothing has changed for you — you still repay the same mortgage — some banks may refuse renewal.
Available Solutions
1. Partial Repayment Before Retirement
By reducing your mortgage amount before retirement, you improve your debt-to-income ratio in retirement. This is the simplest solution but requires liquid funds. Ideally, aim for a mortgage below 50% of the property value before retirement.
2. Accelerated Amortisation in the Years Preceding Retirement
If you are 5-10 years away from retirement, accelerate your amortisation to achieve a comfortable loan-to-value ratio. Every franc repaid strengthens your position with banks at renewal time.
3. Using Retirement Capital (Occupational Pension)
When you retire, you can choose to receive part or all of your occupational pension assets as a lump sum. This capital can be used to partially repay the mortgage — with the potential tax advantage of spreading the withdrawal over several years in certain cantons.
4. Change Lender
Some financial institutions — particularly insurance companies and pension funds — are more open to borrowers in retirement than traditional banks. They assess repayment capacity differently and may accept a mortgage even with reduced income, provided the property has sufficient value.
At the time of mortgage renewal, it is wise to compare mortgage offers from several institutions, particularly when transitioning to retirement.
5. Consider a Shorter-Term Mortgage
Some banks are more flexible on terms when the amortisation period is shorter. A 5 or 7-year mortgage with accelerated repayment may be more acceptable than a longer-term mortgage.
