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Owner-occupied home: Are mortgages viable on a pension?

Retirement can result in financial losses. Nevertheless, home owners usually want to remain living in their own four walls. This requires good preparation.

05 February 2019, author: Stéphane Meusy, photo: Helvetia

A retired man lies on the sofa and reads something on a smartphone.
Condominiums after retirement: People who plan their mortgage financing long term can afford residential property with their pension even at an advanced age.

Pensions from OASI and pension funds generally do not exceed 60 per cent of the income that can be insured through the LOB mandatory insurance. However, experience shows that pensioners need about 80 per cent of their previous income to maintain their previous standards of living. This gap can/should be closed by a 3rd pillar plan. But by buying a house, pensioners may possibly tie up exactly the funds they need later for their daily living expenses.

Advance withdrawal of pension fund assets

When considering whether to withdraw pension fund monies early to buy a property you should take into account in particular any related reductions in your future pension and possibly also the risk benefits in the event of earning disability and death. If you choose this method of financing you should close the resulting pension gap again as quickly as possible by paying in to the pension plan and, if necessary, close any related gaps in risk benefits.

Affordability requirements

What is important is that your insurance or bank deems your mortgage to be financially viable even after you leave professional life. The mortgage interest and the maintenance costs must not exceed one third of your pension income. And this must also be the case if the mortgage interest were to climb to five per cent. If you cannot meet the viability requirements after you retire, you risk a termination of your mortgage and a forced sale.

Long-term assessment of costs

Before you begin looking for a condominium, you therefore need to know the maximum amount of money it can cost so that you can continue to live in it during the third phase of your life as well. To assess your financial capacities for the long term, take advantage of the expertise of a pension advisor. A pension advisor calculates how much of your mortgage you need to have paid before you retire and how you can proceed as efficiently as possible: through indirect repayment with pillar 3a, which has tax benefits, or with additional funds from a flexible pension, for instance. Additionally, a pension advisor can also estimate whether you need insurance coverage in the event of the death or loss or earnings of yourself or your partner to secure the payment of your mortgage.

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