What is mortgage amortisation? And how does it work?
What is mortgage amortisation?
Mortgage amortisation is when a borrower gradually reduces the capital borrowed and the interest on that capital. This amortisation aims to repay the mortgage in full at the end of the agreed period. In Switzerland, a so-called 2nd ranking mortgage is generally recommended to be amortised within fifteen years or before retirement age.
How do you define your financing needs?
Why is mortgage amortisation important?
Mortgage amortisation is essential for property owners in Switzerland, as it reduces the capital borrowed and the interest payable on that capital. By regularly repaying part of the capital borrowed, borrowers can reduce the total cost of the mortgage over the long term.
How does mortgage amortisation work?
Mortgage repayments are generally made in quarterly, half-yearly or annual instalments, depending on the repayment schedule agreed between the borrower and the lending bank. Repayments can be made directly or indirectly.
How do you pay off your mortgage?
What are the different types of mortgage repayment available in Switzerland?
Direct amortisation
Direct repayment involves regular repayment of the capital borrowed over a given period. In other words, the debt is regularly reduced by a fixed amount at agreed intervals, and so is the interest charge.
Indirect amortisation
Indirect amortisation involves the regular investment of a fixed amount via a 3a or 3b pension product, pledged by the bank as security for the loan, which will be used to reduce the capital borrowed, in principle, at the end of the repayment period.
The debt is not reduced, and once the capital has been paid in, the mortgage is repaid up to the amount guaranteed.