If you take out a mortgage for your dream home, you must contribute at least 20 percent of the purchase price in the form of personal equity. To do so, you can, for example, also use pillar 3a funds for home ownership. Swiss Life answers the key questions about withdrawing and pledging pillar 3a assets.
Can I use capital from pillar 3a for home ownership?
Yes. You can use pension assets, including capital from pillar 3a (tax-qualified provisions), to purchase your home. When granting a mortgage, this is taken into account as equity.
By increasing your own capital, you can reduce the amount of the mortgage, which means you pay less mortgage interest. But don’t forget: If you pay less interest, you also have fewer tax deductions.
What are the requirements for using third pillar capital for home ownership?
Capital from pillar 3a may be used for home ownership under the following conditions:
- For buying an owner-occupied home.
- For renovating or converting your home.
- For amortising an existing mortgage.
In what form can I use pillar 3a capital for home ownership?
You can either withdraw your pension fund assets from pillar 3a early or you can pledge them.
Early withdrawal from pillar 3a for home ownership
How often may I withdraw money from pillar 3a for home ownership?
You may withdraw money from pillar 3a every five years.
Is there a minimum amount I need to withdraw from pillar 3a?
No. Unlike 2nd pillar assets, there is no minimum amount required for early withdrawal of pillar 3a funds.
For how long can I withdraw funds from pillar 3a?
Partial withdrawals from pillar 3a can be made up to five years prior to reaching normal retirement age (men: 65 years, women: 64 years). Thereafter you may only apply your entire assets from tax-qualified provisions.
Are taxes due for the early withdrawal of pillar 3a funds?
Yes. If you withdraw funds from pillar 3a, this withdrawal will be taxed at a reduced rate and separately from other income. The level of taxation varies from canton to canton.
What are the advantages of withdrawing pillar 3a funds early for home ownership?
An advance withdrawal of pillar 3a funds provides you with more equity capital and helps you to reach the 20% threshold for personal equity. In addition, an advance withdrawal can enable you to take out a smaller mortgage and thus pay less mortgage interest.
Pledging pillar 3a assets for home ownership
How does pledging pillar 3a assets for home ownership work?
If you pledge your pillar 3a assets, you will continue to make regular payments to the third pillar. This ensures that both your insurance cover and your retirement capital are maintained.
The assets serve as collateral for the financial institution: in the case of a pledge, it will have access to your capital, but will normally only use it to amortise the mortgage once the pillar 3a assets are paid out. However, if you are no longer able to pay your interest or if the proceeds from selling the property are less than the amount of the mortgage, the mortgagee can access the capital earlier.
What are the advantages of pledging my pillar 3a account?
The pledge provides additional collateral for the financial institution. This will generally offer you better conditions, although this is largely dependent on the mortgagee's concept and institutional structure.
Moreover, the fact that you only pledge the capital in pillar 3a and do not withdraw it in advance means that no tax is due on the early withdrawal. This will take pressure off your budget.
At the same time, your tax burden will be reduced because you will be able to deduct more from your taxable income due to the higher mortgage interest. But don’t forget: The tax advantage is only worthwhile if your pillar 3a assets are invested and generate a greater return than the interest paid on the mortgage.
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