Financing Homeownership with Pillar 3a

The dream of owning a home often fails in Switzerland due to a lack of equity. However, Pillar 3a, a key component of retirement planning, can under certain conditions be used to purchase residential property. But how does this work exactly, and what needs to be considered when it comes to early withdrawal or pledging? This article highlights the key aspects and provides practical tips for using Pillar 3a.

Published on: January 8, 2025 | Reading time: approx. 5 minutes

Pillar 3a Funds: Early Withdrawal or Pledging?

Under the home ownership promotion scheme (WEF), Pillar 3a allows you to use funds for the purchase, renovation, or refurbishment of owner-occupied residential property. There are two main options:

• Early Withdrawal: In this case, funds from Pillar 3a are withdrawn and used as equity for the mortgage. The advantage lies in a smaller mortgage and lower interest burdens, although early withdrawal reduces the retirement savings.
• Pledging: The funds remain in the account and are pledged as security to the bank. This enables the borrower to take out a higher mortgage without tapping into retirement savings. However, pledging leads to higher interest costs.

Tax Implications of Using Pillar 3a

An early withdrawal from Pillar 3a is subject to taxation on the withdrawn funds. Tax rates vary significantly across cantons. Additionally, a smaller mortgage results in lower deductible interest payments for tax purposes. With pledging, tax deductions remain possible due to higher debt levels, but the overall interest burden is higher.

The choice between early withdrawal and pledging should, therefore, not only depend on financial affordability but also on the tax implications.

Weighing Risks and Benefits

Both options come with pros and cons. Early withdrawal reduces retirement savings, and repayments are not possible. Pledging, on the other hand, increases debt and carries the risk of collateral liquidation if mortgage payments can no longer be met.

A combination of both options or using additional resources, such as pension funds (Pillar 2), can be a solution to make the financing more manageable and flexible.

Further helpful tips on home financing using retirement savings are available from Raiffeisen here.

Taking the Next Step with HYPOHAUS

Whether early withdrawal, pledging, or finding the optimal mortgage solution – HYPOHAUS supports you with comprehensive mortgage comparisons and our expertise in mortgages. We help you secure the best conditions and build a solid foundation for your financing.

Contact us today to learn how we can assist you on your path to your dream home. An overview of our services can be found here.