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 by law. If capital is used from the second pillar, the pension fund, the withdrawn amount must not exceed ten percent of the purchase price, while the remainder must come from liquid assets. By contrast, equity capital from tied pension provision, Pillar 3a, counts as a liquid asset and is consequently not subject to any limit.
Depending on the canton and the pension fund's conditions, pension capital can either be withdrawn in part or in full. Withdrawals are only possible every five years. Other rules apply to pledging, which is possible as an alternative to advance withdrawal.
Pension capital can only be used as part of the promotion of home ownership if you are buying or renovating 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.
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 be the case that pension benefits or benefits in the event of disability or death are no longer paid in full. Withdrawals from Pillar 3a can also lead to a reduction in retirement benefits. Depending on the regulations of the canton in question, a lump-sum payout tax is also payable if retirement assets are withdrawn for financing real estate.
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||Less capital on retirement||Less capital on retirement|
|Limit||Maximum of ten percent of the equity capital||No limit|
|Repayment of the amount withdrawn||Repayment possible up to three years before retirement||Repayment not possible|
|Agreement||Spouse's consent required||Spouse's consent not 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 pension 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.