Direct or Indirect Amortisation

Direct or Indirect Amortisation

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If you are currently interested in home ownership financing, you have certainly already come across the terms direct and indirect amortisation. But what do these terms mean and what is the difference between the two types of amortisation?

The amortisation of the mortgage loan is about the repayment of the loan taken out. Banks distinguish between direct and indirect repayment (amortisation).

When you get a mortgage from a bank, insurance company or pension fund, you as the buyer of a property usually put up at least 20% of the purchase price as equity. The loan granted by the bank is divided into two parts of the mortgage. You will receive two-thirds or about 65% percent of the purchase price from the bank as a 1st mortgage. If you need more financing, the bank will grant you a 2nd mortgage. In contrast to the 1st mortgage, the bank requires you to repay this 2nd mortgage within a time frame of 15 years or until ordinary retirement age.

There are two possible ways for you to repay the second mortgage: directly or indirectly.


Direct Amortisation

The first option is direct amortisation. In this case, you directly reduce your mortgage debt of the second mortgage year by year. The amount of the annual amortisation is deducted directly from your mortgage debt. The advantage of direct amortisation is that the debt on your property is reduced each year and you pay less mortgage interest year after year.

Indirect Amortisation

With indirect amortisation, you pay an annual amortisation amount into a retirement savings account (pillar 3a) or into a retirement savings policy, which serves your bank as security for the mortgages granted. In contrast to direct amortisation, the amount owed to the bank does not change but remains constant. The debt is not continuously reduced, but only after the fifteen-year term has expired. At that point, the assets saved in the retirement savings account 3a are used to repay the mortgage debt. With indirect amortisation, you benefit from a double tax deduction. On the one hand, you can deduct the constant mortgage interest from your taxable income; on the other hand, you can also deduct the amount you pay into the pillar 3a for tax purposes.

Here we summarise the advantages and disadvantages of each option in a short list, so you can compare the advantages and disadvantages of direct and indirect amortisation and thus of lower mortgage interest or a higher tax deduction:


Advantages and disadvantages of direct amortisation:
  • Your mortgage debt becomes smaller each year
  • The interest costs for your property decrease continuously
  • Your disposable income becomes larger
  • Your tax deduction will be lower because the mortgage debt and the interest will decrease.
  • If you want to pay into pillar 3a, you will need an additional budget for this.


Advantages and disadvantages of indirect amortisation:
  • You can deduct the entire mortgage debt from your taxable assets until it is repaid.
  • You can deduct the constantly high mortgage interest from your taxable income until repayment.
  • You can deduct the maximum amount paid into the 3rd pillar from your taxable income at the same time
  • Your mortgage debt does not reduce
  • Your interest burden is not reduced


Which form of amortisation is right for you depends very much on your personal and financial situation. You also need to consider the tax advantages and disadvantages. The amortisation of the mortgage should be thought through in the long term and adapted to your personal needs. We therefore warmly recommend you consult an expert in that matter. Our team will be happy to help you with your needs and questions.