Amortizing or Investing after 2029: Calculation Examples for the New Decision

Until the end of 2028, the familiar tax logic still applies in Switzerland. The deemed rental value is taxed as fictitious income, while mortgage interest and maintenance can be deducted from taxable income. For decades, this system has made high leverage financially more attractive than a pure interest calculation would suggest. With the turn of the year 2028/2029, both sides of the equation will disappear: the Federal Council has put the reform of owner-occupied property taxation into force on January 1, 2029. The Tages-Anzeiger highlighted the question in a money blog post: Those who leave a high mortgage unchanged lose the previous interest deduction without direct compensation. But does this automatically mean that more should be amortized? It's worth taking a closer look, as the answer is more nuanced than the headline suggests.

What Actually Changes with the End of the Deemed Rental Value

The reform brings several parallel changes. First, the deemed rental value as fictitious income is abolished, reducing taxable income. Second, deductions for mortgage interest and property maintenance for owner-occupied residential property are largely eliminated; for rented or leased properties, they remain. Third, energy-related renovations can no longer be deducted from direct federal tax, while temporary deduction options remain at the cantonal level depending on the canton. Fourth, the law envisages a time- and amount-limited first-time buyer deduction for interest on debt for people who acquire owner-occupied property for the first time. The details are set out in the implementing provisions that the Federal Department of Finance is currently drafting.

The net effect is different for every household and depends on the ratio of deemed rental value, mortgage interest, and maintenance. A common misconception is that owners with a high mortgage automatically lose out due to the reform. With current interest rates, this is not true in many cases: as long as interest and maintenance together are lower than the deemed rental value, the household has so far been a net taxpayer on the property and will benefit from the system change. You lose out only if you could deduct more than the deemed rental value, typically at high interest rates, very high leverage, or large maintenance expenses. What changes for everyone, however, is the incentive structure: debts are no longer subsidized through taxes, shifting the calculation between amortizing and investing.

The Basic Question Remains: Return on Equity

The core question of amortization does not fundamentally change with the reform. Those who amortize take money from an alternative use and repay a debt with it. You save the interest on the debt, but miss out on the return from the alternative use. What changes are two parameters: the effective mortgage interest rate after tax and the effective investment return after tax.

Before the reform, the mortgage interest rate after tax was significantly lower than the nominal rate because it was tax-deductible. For example, those paying a 30 percent marginal tax rate and a 2.0 percent mortgage interest rate carried an effective rate of 1.4 percent. From 2029, the effective rate will correspond to the nominal one. The bar that an investment alternative must surpass will thus rise. The benefit of amortization will arithmetically be greater, even for households that benefit overall from the reform.

Example Calculation: Household with High Mortgage

Consider a couple in their early fifties with a CHF 800,000 mortgage on a single-family house valued at CHF 1.2 million. The property is leveraged two-thirds. The family currently pays a blended rate of 1.8 percent, corresponding to an annual interest expense of CHF 14,400. The marginal tax rate is 32 percent, the deemed rental value is CHF 22,000 per year, the standard maintenance CHF 4,400.

Until 2028: Net taxable is around CHF 3,200 (deemed rental value minus interest minus maintenance), corresponding to around CHF 1,000 in additional tax per year.

From 2029: The deemed rental value disappears, but so do the deductions. Since this household has so far paid net tax on the property, it will be relieved by about CHF 1,000 per year by the reform. For them, the reform is therefore not a loss.

Nonetheless, the amortization calculation changes substantially. Previously, the after-tax cost of the mortgage was about 1.2 percent; from 2029 it will be the full 1.8 percent. If the family reduces the mortgage by CHF 200,000 to CHF 600,000, interest costs fall by CHF 3,600 per year, and this saving now benefits the budget in full, whereas it was previously reduced by the lost tax deduction to around CHF 2,450 net. Amortization is worthwhile whenever the CHF 200,000 on the investment side does not earn more than 1.8 percent after tax and costs, i.e., does not exceed the mortgage interest itself. This hurdle is lower than it seems: a defensive cash or bond portfolio will not surpass it after costs and taxes on returns, but a diversified equity portfolio can over the long term—though with no guarantee.

Example Calculation: Household with Low Leverage

The situation is different for a retired couple who, after decades of amortization, have only a CHF 200,000 mortgage left on a property worth CHF 1.5 million. The interest expense at 1.8 percent is only CHF 3,600 per year. The marginal tax rate is 25 percent, the deemed rental value CHF 28,000, the standard maintenance CHF 5,600.

Until 2028: After deducting interest and maintenance, around CHF 18,800 of additional taxable income from the deemed rental value remains, corresponding to around CHF 4,700 additional tax per year.

From 2029: The deemed rental value is completely abolished, along with the small deductions. Net, the household saves about CHF 4,700 in taxes per year, without changing the mortgage. For this profile, the reform is a pure tax advantage, and amortizing the remaining mortgage is largely uninteresting financially. The CHF 200,000 is better kept as liquidity for renovations and living expenses, especially as increasing the mortgage later in retirement could fail the affordability test.

Example Calculation: Young Family with a Long-Term Horizon

A family in their thirties has just bought a row house for CHF 1.0 million and taken out a CHF 700,000 mortgage. Interest rate 1.7 percent, marginal tax rate 28 percent, deemed rental value CHF 18,000. Until 2028, the tax burden is moderate, as interest and maintenance largely compensate for the deemed rental value; after all, around CHF 700 in additional tax per year results, which disappears from 2029 onwards.

From 2029 the tax advantage on interest is missing, and the hurdle for the investment alternative rises from about 1.2 to 1.7 percent. Also to be checked is whether and to what extent the new first-time buyer deduction applies; here it pays to look at the implementing provisions as soon as these become available. The family has three realistic paths. They can accelerate the mandatory amortization of the second mortgage to get well below the two-thirds leverage mark by retirement. They can let the amortization run at the statutory minimum and put the freed-up funds into a diversified portfolio or pillar 3a. Or they can combine both: special repayments when market conditions are favorable, investments in equities and pension savings in more stable phases.

Over 25 years, the final wealth of the variants differs greatly. Those who invest around CHF 15,000 of free funds annually in a portfolio with a net return of four percent, instead of using it to repay the mortgage at 1.7 percent, end up about CHF 160,000 ahead. If the net return falls to two percent, the lead shrinks to a few thousand francs and can turn negative after portfolio costs and wealth tax, putting amortization ahead. So the family has less to answer the question "to amortize or not" than the question of how realistic their return expectation is.

Timing: Why the Year 2028 Is Important

Until the end of 2028, the old tax logic applies. Anyone who still wants to deduct larger maintenance work for tax purposes should bring these forward into this period. Likewise, interest payments on owner-occupied residential property can be claimed for the last time for tax year 2028. Anyone who decides on fast amortization should nevertheless not rush the restructuring of assets, but implement it in stages. Large payouts from pension funds or pillar 3a have their own tax logic and should be coordinated with retirement planning.

Who Should Choose Which Strategy

The three examples yield a simple matrix. Amortization tends to be sensible when leverage is over 65 percent, return expectations on the portfolio are cautious, the investment alternative would primarily yield taxable income such as interest, and sufficient liquidity remains. Investing is generally the better choice with low leverage, a long remaining time until retirement, high risk tolerance, and disciplined diversification, especially since private capital gains remain tax-free in Switzerland.

A frequently underestimated factor is availability. Capital tied up in the property can only be mobilized again through a new increase, and the bank will scrutinize this in old age or if income falls. Those planning renovations after retirement should intentionally keep some free funds liquid.

Conclusion

The reform does not change the basic principle of wealth accumulation, but rather eliminates a tax distortion. At today's interest rates, many owners will benefit in the balance from the system change, including those with high mortgages. At the same time, the bar for holding debt will rise: from 2029, an investment alternative must exceed the full mortgage interest after tax and costs, not just the tax-reduced rate. Those who know the three key figures—nominal mortgage interest, realistic after-tax portfolio return, and their own liquidity reserve—hold the core of the decision. Everything else follows from personal time horizon and the willingness to tie up capital.

Important: The scenarios and calculation examples presented in this article are for general information and illustration of the system only. They do not constitute tax, legal or financial advice. Since the specific tax consequences depend greatly on individual income and asset situations, the canton of residence, and personal pension circumstances, every arrangement should be individually reviewed with a qualified tax expert or financial planner before measures are taken.