2023-12-14 19:50:55
With a payback you invest in your own house
The higher mortgage interest rates make debt financing more expensive, but also make paying off mortgages more attractive.
Does it make sense to pay off the mortgage in full? A single-family home in Uster ZH.
Photo: Christian Beutler (Keystone)
We are married, both work, and have two grown children. I am planning to partially retire next spring and withdraw my PF capital. We have a good income and quite a lot of assets, most of which are invested in the stock market. In our portfolio we have ETFs plus direct investments in Swiss dividend pearls. We live in a single-family house. It is financed with own funds and a Saron mortgage for 530,000 francs. We have around 600,000 francs of free funds and are thinking regarding how we can invest them. We are considering paying off the mortgage in full. We discussed this with the bank and, not unexpectedly, the bank advised us to continue the mortgage and invest the capital in the stock market. What would you recommend to us? UL
If you were to invest the 600,000 francs that you hold as liquid assets, you would have the chance to increase the money and, if positive, benefit from an attractive return, as you know thanks to your investment in Swiss dividend pearls. This would also enable you to beat inflation, which is not possible with liquid assets in the account. Here, inflation eats away at the value of your money.
If you also invest the capital in dividend pearls, you must be aware that you would have to tax the dividends generated in this way as well as any interest income as income. At least you might deduct the costs of the mortgage in your tax return.
Another argument in favor of maintaining the mortgage is that inflation not only eats away at the value of your money, but also at your debts: due to inflation, these are also constantly becoming slightly smaller in relation to your purchasing power. Of course, nominally the guilt remains the same.
Inflation is higher than returns
However, if you keep the mortgage and invest the 600,000 francs, you will bear a more or less high investment risk, as you already know from your portfolio. After all, you might invest the money conservatively – for example, invest in Swiss franc bonds from very safe borrowers such as the Swiss Confederation or in bonds from other top borrowers.
The problem with this is that you cannot beat inflation because it is higher than the return you can achieve with very safe Swiss franc investments. In addition, you should always only look at the return following fees. Then you quickly see that you will probably only beat inflation by investing in stocks, which, however, entails strong price fluctuations and increased investment risk.
You therefore have to weigh up what you want to give greater weight to: your investment opportunities or your capital security. In your situation, I would probably pay off the mortgage in full. Since interest rates have already risen sharply and debt financing for home ownership has become more expensive, I don’t think it’s a bad deal to pay off the mortgage in terms of returns. This means you save on the mortgage interest that you pay to the bank.
Have enough reserves on hand
In fact, the mortgage interest saved per year is the theoretical return that you achieve on the amortized amount. Of course, you would still have to take into account the tax saving effect of the interest deduction if you continue the mortgage – but also the tax effect on the return of the money in the form of dividends and interest.
The bottom line is that I assume that, taking the risks into account, you will be better off with full amortization than if you keep the mortgage and invest the capital, especially since you already have a portfolio and will pay out additional money through the planned partial capital withdrawal in the course of partial retirement get, which you should also invest sensibly.
Before you decide on amortization, you should calculate exactly how much money you and your wife will have available to you and your wife to finance your standard of living following your partial retirement. You should also always have enough reserves to cover unexpected costs. This should be the case for you.
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