The End of the Rental Value: Should You Take Advantage of the Reform to Reduce Your Mortgage?

What This Change Actually Means

Currently, if you own and live in your own home, you must report a rental value (a notional rent) as taxable income. In return, you can deduct the interest you pay on your mortgage.

With the reform, this mechanism will disappear : the rental value will be eliminated, as will the deduction for mortgage interest.

A mortgage therefore becomes less advantageous from a tax perspective. However, this does not mean you should automatically try to pay off your mortgage as quickly as possible.

Paying Off Your Mortgage: The Right Questions to Ask Yourself

Before committing a significant portion of your assets to reducing your debt, there are several factors worth considering.

Is your money working for you elsewhere?

Paying off a mortgage is, in a sense, equivalent to earning a return equal to the cost of the debt you’re avoiding.

If your capital can be invested elsewhere with an expected return higher than your mortgage rate, keeping that money invested may be more financially advantageous. Conversely, if your investments yield little and the cost of your debt is high, paying off the mortgage may become a more attractive option.

There is therefore no one-size-fits-all answer: the cost of the mortgage must be compared to the return your capital could generate elsewhere.

Do you have a sufficient cash reserve?

Making a mortgage payment ties up your money in your home.

This decision can limit your flexibility in the event of major expenses: unexpected home repairs, a financial setback, or the need to provide financial support for your children.

Before paying off a significant portion of your debt, it’s therefore essential to keep enough easily accessible cash on hand.

What stage of life are you in right now?

The situation may also vary depending on the homeowner’s age and future plans.

As you approach retirement, reducing your debt can help lower future financial burdens. But you should also consider a factor that’s often overlooked: once your mortgage balance is very low, it becomes difficult to take out a new one. Banks may indeed be more cautious when it comes to granting new financing to someone nearing or already in retirement.

Indirect amortization through Pillar 3A: another alternative

There is a way to pay off your mortgage while continuing to make your money work for you:indirect amortization through Pillar 3A.

The process is relatively simple: instead of making direct annual mortgage payments to your bank, you contribute the amount intended for repayment into a Pillar 3A retirement savings plan.

The capital accumulated in Pillar 3A will then be used to pay off the mortgage in a lump sum, typically at maturity or upon retirement.

In 2026, a person enrolled in a pension fund can contribute up to 7,258 CHF per year to a Pillar 3A plan. This amount is tax-deductible, resulting in tax savings.

With the elimination of the rental value deduction, this choice makes perfect sense: even though the mortgage interest deduction is being phased out, the Pillar 3A deduction remains fully valid. It is therefore an excellent tax tool that survives this new reform and prevents you from unnecessarily tying up your cash while waiting for the loan to mature.

Should you take action now?

The elimination of the rental value is not expected to take effect before 2028, and the question becomes particularly relevant when your mortgage matures.

And since every situation is different, the best approach is to conduct a comprehensive review of your financial situation with your bank advisor before making a decision that will have a lasting impact on your net worth.