3rd pillar pledge
Also known as indirect depreciation
Optimize the purchase of your principal residence with 3rd pillar collateral
The 3rd pillar offers an advantageous solution for financing the purchase of your principal residence, notably via the pledge mechanism.
When buying a property in Switzerland, it is often necessary to have 20% equity.
The 3rd pillar can be used to build up these funds, either by making an early withdrawal, or by opting for a pledge.
Two ways to use your 3rd pillar to buy real estate
Early withdrawal: This option allows you to use your capital immediately to finance part of your property purchase, thereby reducing the mortgage and associated interest charges.
However, in the case of a linked 3rd pillar, this withdrawal is subject to tax.
What’s more, the capital withdrawn ceases to generate the advantageous returns offered by the 3rd pillar.
Pledge: By choosing to pledge your 3rd pillar, you pledge your capital to your bank, without withdrawing it.
This approach increases the amount of your mortgage, and therefore the interest you pay, but maintains the tax benefits and returns of the 3rd pillar.
The latter continues to grow while offering retirement benefits, as well as coverage in the event of disability or death.
There’s no reason why you shouldn’t start your 3rd pillar now and decide later.
Early withdrawal or pledge: which option to choose?
Although pledging may seem more expensive at first glance, it offers many long-term advantages.
By preserving your 3rd pillar savings, you continue to benefit from tax deductions on your premiums and secure your financial future.
Moreover, in the case of a 3rd pillar insurance policy:
- Disability insurance in your 3rd pillar means that you don’t have to pay any premiums, so you can preserve your guaranteed capital for retirement, even in the event of incapacity for work.
- Life insurance in your 3rd pillar protects your family in the event of your death, guaranteeing them the same amount you would have received in retirement.
These two points are crucial to reassuring banks and protecting your investment.
What happens to the collateral at retirement?
At retirement age, when your pension contract comes to an end, the bank will demand repayment of the mortgage from your 3rd pillar funds.
Only the amount needed to pay off the loan will be deducted, while the remaining capital and interest will be returned to you.
In conclusion, by pledging your 3rd pillar, you can continue to benefit from tax advantages and returns, in addition to disability and death cover, while financing your property.
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