Achieve your dream home with sufficient equity capital: An overview

The dream of owning your own home should not be defeated by a shortage of equity capital. As part of the promotion of home ownership scheme, you can use funds from your retirement provision and thereby contribute sufficient equity capital to ensure that your property can be financed.

Use the promotion of home ownership scheme to raise the required equity capital

Anyone wanting to buy a property must put down at least 20 percent of the market value in equity capital. A maximum of 80 percent of the purchase price can be financed with a mortgage. These financing requirements can be a hurdle, which is why many buyers nowadays withdraw funds from their retirement provision under the promotion of home ownership scheme. This form of financial assistance means that a larger proportion of the population can afford the necessary equity capital to make their dream of home ownership come true.

The promotion of home ownership is subject to specific conditions

The promotion of home ownership scheme refers to the early withdrawal of retirement savings from the second and third pillars to purchase or to renovate an owner-occupied home, and to repay a mortgage. Advance withdrawals from retirement provision are strictly regulated. The Pillar 3a pension provision counts as a liquid asset and must make up at least ten percent of the property’s purchase price.

Withdrawals in full from the second pillar can be made up to the age of 50; after that, withdrawal amounts are limited. Restrictions also apply if you have made voluntary purchases in the past three years. With the third pillar, the entire capital can be withdrawn, regardless of age. Withdrawals are only possible every five years in both the second and third pillars. Other rules apply to pledging, which is possible as an alternative to advance withdrawal.

Pension capital can only be used as part of the home ownership promotion if it is used for owner-occupied residential property. Properties that are to be used as vacation homes or for renting to third parties may not be financed using assets from retirement provision.

Financing of residential property from equity capital and a mortgage

Example of financing with the minimum 20% equity capital, at least half of which (10% of the equity capital component) must come from liquid assets.

Source: Credit Suisse

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Funds from retirement provision for promotion of home ownership: The drawbacks

Early withdrawals from the second and third pillars or pledging primarily serve to enable people with less equity capital to finance home ownership. By using funds under the promotion of home ownership scheme, the equity capital available for the purchase of a property can be increased. The increased equity capital means that the amount of the mortgage can be reduced, which leads to lower mortgage interest.

Withdrawing pension capital also carries risks: Once the amount has been withdrawn, it is no longer part of your retirement provision. If second pillar assets are paid out, it can also be the case that benefits in the event of disability or death are no longer paid in full. Withdrawing from Pillar 3a also leads to a reduction in retirement benefits. In case of a withdrawal of benefits from the second and third pillars, a lump sum payout tax is due, the amount of which depends on the canton and must be paid from the free assets.  

Taking advantage of the promotion of home ownership: What are the important things to note?

  Second pillar/pension fund  Pillar 3a
Minimum withdrawal Minimum amount of CHF 20,000 No minimum amount
Impact on pension benefits
Less retirement capital on retirement; depending on the pension fund, lower risk benefits in the event of death/invalidity
Less retirement capital on retirement
Limit Withdrawal only possible every five years. In addition, restrictions apply from the age of 50 and for voluntary purchases in the last three years. Withdrawal only possible every five years
Repayment of the amount withdrawn Repayment generally possible up to three years before retirement
Repayment not possible
Agreement of the spouse/registered partner
Consent required

Consent  required

Combining second and third pillar funds for promotion of home ownership

If pension capital is withdrawn for the promotion of home ownership, it is important to clarify the risks in advance and to consider carefully whether assets from the pension fund and/or Pillar 3a should be used. In most cases, it is advisable to withdraw funds from Pillar 3a first. In that way, the insurance coverage provided by the pension fund in the event of disability or death remains in place. In addition, the retirement pension received later from the second pillar is not reduced directly.

However, less capital is generally available in Pillar 3a than in the second pillar. If additional funds are still needed after the advance withdrawal from the third pillar, these can be provided from the pension fund. Which sources are most suitable for the purchase of residential property also depends on factors such as an individual's future plans and current financial position, and the conditions of the pension fund in question.

Would you like to fulfill your dream of owning your own home?

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