Financing in later life
Retirement does not change your property – it changes your income. That is exactly what the bank recalculates your mortgage against, and many people only find out at that point that affordability no longer works on paper, despite years of paying every instalment on time. Knowing this early buys you years to act.
The bank does not assess affordability once at purchase but again at every renewal. While you are working, salary is the basis. Afterwards what counts is income that arrives regularly and permanently: the state pension, the occupational pension, and – depending on the bank – an imputed return on remaining assets.
Taking your occupational pension as a lump sum leaves you with a smaller ongoing pension. That improves your asset position but worsens precisely the figure the bank looks at. Weighing the two against each other before you decide is one of the most effective levers available.
The formula is the same as at purchase; only the income side shrinks. The bank adds the imputed interest of around 5 per cent on the mortgage, around 1 per cent of the property value for maintenance and running costs, and any amortisation. That total must not exceed roughly one third of gross income.
The imputed rate is deliberately far above the actual mortgage rate. It is a stress test, not a price: the bank wants to know whether you could still pay if rates rose sharply.
A Swiss mortgage is notionally split in two. The first mortgage runs up to two thirds of the lending value and need not be repaid. Anything above that is the second mortgage – and it must be amortised within 15 years, or by retirement at the latest.
This is not a formality. Postponing it leaves you facing a repayment obligation at 65 at the very moment your income drops. Bringing it forward reduces the loan-to-value ratio and your interest costs permanently.
There are more routes than selling, and they are not mutually exclusive. Reduce the loan-to-value ratio with a partial repayment from savings or pillar 3a. Bring children in as co-borrowers or through a loan. Let a room or a separate flat, if the bank counts the rental income. Sell the property and register a right of residence or usufruct in the land register. Or plan the move to a rented home while it is still voluntary.
Timing is what matters. Five to ten years before retirement almost all of these routes are open and can be structured tax-efficiently. After retirement the choice narrows and the pressure rises.
Earlier than most people think. An affordability calculation projected to your retirement date makes sense once retirement is roughly ten years away – ideally alongside a pension analysis that also models the lump-sum versus pension decision.
Ask explicitly for a calculation based on your future pension income, not your current salary. Only that figure tells you whether you need to act.
| Block | What the bank applies | What it is for |
|---|---|---|
| Imputed interest | around 5 % of the mortgage per year | stress test for sharply rising rates |
| Maintenance and running costs | around 1 % of the property value per year | repairs, renewal, operating costs |
| Amortisation | second mortgage repaid by retirement | loan-to-value back down to two thirds |
| Limit | together no more than about a third of income | the affordability benchmark |
Indicative figures. Rates differ between banks, and individual cases are assessed on their merits.
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Not automatically. A running fixed-rate mortgage continues to its agreed end date regardless of your age. The critical moment is renewal: the bank then reassesses affordability, this time on pension income. If it no longer works, the bank will usually ask for a partial repayment or another solution – outright cancellation is the exception, not the rule.
Income that arrives regularly and permanently: the state pension, the occupational pension, and depending on the institution an imputed return on free assets. A one-off lump-sum withdrawal does not count as income; it increases assets, which usually worsens rather than improves the affordability calculation.
As a guideline, no more than two thirds of the lending value – the first mortgage. Anything above must be amortised by retirement. Affordability remains decisive, though: even a mortgage below that threshold can be too high if pension income no longer satisfies the one-third rule.
For affordability, the pension is usually better, because the bank wants to see ongoing income. For flexibility and for partially repaying the mortgage, the lump sum can be better. The decision also has significant tax consequences and many pension funds require notice of up to three years. Model both options before committing.
Often yes, because a lower loan-to-value ratio directly eases the affordability calculation and permanently reduces interest costs. Against it: you tie up liquidity, and mortgage interest is tax deductible. Weigh up how much free capital you would still hold in reserve after the repayment.
In principle yes. There is no statutory upper age limit and banks assess each case individually. What counts is affordability on pension income and the loan-to-value ratio. In practice the requirements are stricter and the borrowing headroom smaller than before retirement.