After last week’s article on a proven way to repay your mortgage in Switzerland, I received many kind messages and had a number of very interesting conversations around the idea. Thank you to everyone who reached out – I genuinely enjoyed those exchanges.
Several of those discussions naturally moved from theory to practice, so I thought it would be useful to share a concrete example showing how the smart mortgage loop can play out over time. Below is a simple visual that brings the numbers together, and here I’ve linked the original article for anyone who’d like to revisit the full framework.
The Smart Mortgage Loop Example: 7 Years of Buy-ins → Repayment at Year 10
This example assumes annual Pillar 2 buy-ins of CHF 50’000 for seven years, a 4% annual compound return, a 35% marginal tax saving, and a 7% WEF withdrawal tax at year 10. The annual tax savings are also reinvested and compounded separately at 4% per annum until year 10.
Underlying data
| Year | Buy-in | Compound factor at 4% | Pillar 2 value at year 10 | Tax saving at 35% | Tax saving compounded at 4% |
|---|---|---|---|---|---|
| 1 | CHF 50’000 | 1.48 | CHF 74’012 | CHF 17’500 | CHF 25’904 |
| 2 | CHF 50’000 | 1.42 | CHF 71’166 | CHF 17’500 | CHF 24’908 |
| 3 | CHF 50’000 | 1.37 | CHF 68’428 | CHF 17’500 | CHF 23’950 |
| 4 | CHF 50’000 | 1.32 | CHF 65’797 | CHF 17’500 | CHF 23’029 |
| 5 | CHF 50’000 | 1.27 | CHF 63’266 | CHF 17’500 | CHF 22’143 |
| 6 | CHF 50’000 | 1.22 | CHF 60’833 | CHF 17’500 | CHF 21’291 |
| 7 | CHF 50’000 | 1.17 | CHF 58’493 | CHF 17’500 | CHF 20’473 |
| Sum before withdrawal tax | CHF 461’994 | CHF 122’500 | CHF 161’698 | ||
| Sum after 7% withdrawal tax | CHF 429’655 | Total repayment power: CHF 591’353 | |||
Source: Illustrative actuarial analysis by ActuaryExplains.ch
How to read this chart:
Buy-ins in years 1–7.
Three-year waiting period (blocking rule).
Repayment power at renewal.
A real-life example
Examples make this much easier to relate to, so let’s look at one.
Assume I have a CHF 500’000 mortgage tranche, fixed for 10 years. My goal is simple: repay this tranche in full when it comes up for renewal.
If I did this the usual way, by sending after-tax money straight to the bank, I’d need to set aside roughly CHF 50’000 per year for ten years. That’s the straightforward, intuitive approach.
Instead, I use what I call the smart mortgage loop.
For the next seven years, I make a CHF 50’000 buy-in each year into my second pillar. These buy-ins are tax-deductible, so each year I deduct them from my taxable income and pay less in income tax.
After those seven years, nothing dramatic happens. I simply wait. By the time the mortgage comes up for renewal, all contributions satisfy the three-year blocking rule. Close to the renewal date, I withdraw the accumulated amount via WEF, use it to repay the tranche, and pay a 7% capital withdrawal tax on the amount withdrawn.
At this point, many people pause and say:
“Wait a moment: 7 × CHF 50’000 is only CHF 350’000. That doesn’t get you to CHF 500’000.”
Exactly. That’s why the full picture matters.
What this strategy actually produces
Over the ten-year period, this approach produces CHF 431’208 in my second pillar, assuming a modest 3% annual return. After applying the 7% withdrawal tax, that leaves CHF 401’024.
On top of that, the tax deductions along the way amount to CHF 122’500. To stay conservative, I assume those tax savings earn no return at all and simply sit as cash.
Put together, that gives me CHF 523’524 available to repay the mortgage – more than the CHF 500’000 I actually need.
And that already includes a margin of safety. I assumed no return on the tax savings and no particularly strong pension fund performance. In reality, I could have invested the tax savings as well, which would only improve the outcome. But I prefer to think about this strategy in conservative terms: if it works without optimistic assumptions, it works.
What if returns are slightly higher?
Now, let’s briefly relax those assumptions — not to be optimistic, but simply realistic.
If my second pillar earned 4% per year, and I invested the tax savings in a conservative ETF portfolio (for example 50% bonds and 50% equities) that also earned 4%, the picture changes again. At the end of ten years, I would have CHF 591’353 available to repay the mortgage – already after withdrawal tax.
In practice, you might also choose to withdraw the money in two tranches rather than one, especially if your mortgage itself is split — for example CHF 300’000 and CHF 200’000. That’s perfectly possible, as long as you respect the five-year rule: WEF withdrawals can generally be made once every five years.
The key insight
I didn’t save more money.
I didn’t take more risk.
I simply changed the order in which the same money moves through the system.
That sequencing — buy-ins first, deducting taxes, letting the money compound, and only then repaying the mortgage — is what does the heavy lifting.
Try it yourself!
One of the reasons Swiss mortgages are so difficult to analyse is that almost every variable interacts with another one.
Your: tax rate, pension buy-ins, investment horizon, compounding assumptions, and withdrawal tax all influence the final outcome.
That is why I built this calculator.
It allows you to model the “Smart Mortgage Loop” using your own numbers and see how voluntary Pillar 2 buy-ins can potentially increase your long-term mortgage repayment power over time.
What I personally find interesting is that the tax deduction itself can become a second compounding engine if the savings are reinvested rather than spent.
Of course, this is still a simplified model. Real pension funds, tax situations, and withdrawal rules differ across Switzerland. But it provides a useful framework for understanding why many Swiss homeowners keep mortgages longer than people from other countries expect.
Try changing:
- the annual contribution,
- time horizon,
- marginal tax rate,
- or compounding assumptions,
and see how dramatically the long-term outcome changes.
The Smart Mortgage Loop Calculator
Model how Pillar 2 buy-ins, tax deductions, compounding, and WEF withdrawals can increase mortgage repayment power over time.
Configuration
Detailed Breakdown
| Period | Buy-In (CHF) | Compound Factor | After Compounding (CHF) | Tax Saving (CHF) | Compounded Tax Saving (CHF) |
|---|
How it works: Voluntary buy-ins reduce your taxable income in the year of contribution (tax saving). The capital grows tax-free until withdrawal. Upon retirement, the full amount is taxed at a reduced rate. The compound factor shows how each CHF grows over time based on the interest rate.
Visual Analysis
About The Smart Mortgage Loop Calculator
The Smart Mortgage Loop Calculator is an illustrative Swiss mortgage and Pillar 2 buy-in tool. It models how voluntary pension buy-ins, marginal income tax deductions, compound growth, WEF withdrawal tax, and reinvested tax savings can affect mortgage repayment power over time.
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