Side Job and using 3A & 3B Pillars

Hi all,

I am new here and in the learning phase :) 

Let me explain my situation and ask my questions, if I may.

Currently, I work full-time, but I don't have a 3A pillar account. I recently learned about its benefits. My wife doesn't work, but she has a 3B account (I believe that's what it's called, correct me if I'm wrong).

To give you an overview of my finances: I decided to buy a home a few months ago and am now trying to save for the 20% down payment. By the end of the year, I anticipate we'll have saved 60k CHF, and I aim to reach 100k CHF by next June/July.

Let's say I'm looking to buy a home worth 1 million CHF. With my current salary of 120k CHF and an additional 300 CHF monthly child support, my annual income is approximately 123,600 CHF. I've calculated that with this income, a bank might offer a mortgage of only around 800k CHF.

One solution I considered is to earn more. I'm planning to start a project with a friend, essentially working for him. We're thinking of formalizing it with a contract where I'd earn an extra 3000 CHF monthly, which annually sums up to an extra 36k CHF. This would bring my total income to about 160k CHF, seemingly enough for a million CHF mortgage.

However, I remember reading in an online article that banks usually rely on the last year's tax declaration. If that's the case, my plan might not work, right? How can I secure a 1 million CHF mortgage with my current and projected income?

Also, I understand that a maximum of 10% of the deposit can come from our pension funds. So, can I use 100k from my pension funds (I think 2A and 3A) and some amount from my wife's 3B account?

Regarding the 3A: If I start a 3A pillar this year and contribute 7k CHF annually, I know it can reduce our tax. But if I decide to purchase a home in June/July 2024 and withdraw from the 3A, how will that affect the tax deductions since it's only been active for about 7-8 months?

Lastly, if I do get the mortgage and continue to contribute 7k CHF annually to my 3A, then use that to pay off my mortgage, is that permissible? And will it still offer tax benefits?

I couldn't find answers to these questions online, and I'm hopeful you might have insights.  :)

Thank you in advance

Hi cihas34042,

I'll try to answer your questions here.

1. "Let's say I'm looking to buy a home worth 1 million CHF. With my current salary of 120k CHF and an additional 300 CHF monthly child support, my annual income is approximately 123,600 CHF. I've calculated that with this income, a bank might offer a mortgage of only around 800k CHF."

The standard rule used by Swiss banks is that a down payment equal to 20 percent of the price is required. So the minimum required down payment for a property that costs 1 million francs would be approximately 200,000 francs, while the remaining 800,000 francs could be covered by a secondary mortgage and primary mortgage.

2. "One solution I considered is to earn more."

While each bank has its own specific criteria, the general rule is that the total costs of home ownership, including the mortgage, should not make up more than one-third of your income. Based on that rule, servicing an 800,000-franc mortgage with a 2% annual interest rate would require an annual income of around 179,780 francs. You can use the moneyland.ch mortgage calculator for a more precise calculation:
Mortgage Calculator

If you are not able to substantially increase your income, there are two alternatives:

• Wait on buying your own home and save up money so that you can cover a bigger share of the property's price yourself, and get a smaller mortgage.
• Buy a cheaper property.

3. "Also, I understand that a maximum of 10% of the deposit can come from our pension funds. So, can I use 100k from my pension funds (I think 2A and 3A) and some amount from my wife's 3B account?"

You can cover up to 10 percent of the down payment with an early withdrawal from your occupational pension fund (pillar 2). The remaining 10 percent must be covered by other assets, which can include early withdrawals from the pillar 3a in addition to other savings.

You can find detailed information about using pillar 2 and pillar 3a retirement savings to finance a home in this guide:
How to Use Swiss Retirement Savings to Buy a Home

4. "Lastly, if I do get the mortgage and continue to contribute 7k CHF annually to my 3A, then use that to pay off my mortgage, is that permissible? And will it still offer tax benefits?"

It is also possible to use the pillar 3a to pay off your mortgage indirectly. In this setup, you pay money into the pillar 3a, and that money is pledged as collateral for the mortgage. Indirect amortization is financially beneficial, in many cases. You can find detailed information in this guide:
Indirect Amortization of Swiss Mortgages: Does it Make Sense?

5. "My wife doesn't work, but she has a 3B account (I believe that's what it's called, correct me if I'm wrong)."

The term pillar 3b is simply used for private retirement savings that are not tax privileged (like savings in a bank account). The term pillar 3b is most commonly used by insurance companies for insurance that has a cash value (sometimes called mixed life insurance, capital-building life insurance, or savings insurance). If your wife's "pillar 3b" savings are in the form of life insurance cash value, then you should exercise caution. Many cash value insurance policies have penalties for early termination, and you could end up getting less money back than you paid in as insurance premiums. Carefully read the insurance policy's terms and conditions to find out how much money you would actually get paid out if you withdrew from the policy ahead of schedule. If you still are not sure, ask the insurance company.

I hope this helps.

Best regards,

Daniel Dreier