Direct amortisation: definition
Direct amortisation means repaying each year part of your mortgage principal, in addition to interest, so that your debt gradually decreases.
In practice, you do not only pay interest to the bank: a fixed or planned portion of your payments is used to reduce the amount borrowed. In Switzerland, direct amortisation is generally required for the part of the mortgage that exceeds around 65% of the property value, in order to bring your debt down to a level considered sustainable by financial institutions. The more you amortise directly, the faster your mortgage decreases and the more your equity share increases.
Direct amortisation differs from indirect amortisation, where the principal is not repaid to the bank over time, but is saved in a product (often pillar 3a) that will later be used to repay part of the mortgage in one lump sum. With direct amortisation, the debt is reduced year after year, making it a simple and transparent solution for many homeowners.
How direct amortisation works
With direct amortisation, each monthly instalment (or quarterly, semi-annual, or even annual payment depending on the bank) consists of two components:
- interest on the outstanding mortgage debt;
- the direct amortisation portion, which reduces the borrowed principal.
At the start of the loan, you pay interest on the full mortgage. As direct amortisation reduces the principal over time, interest decreases, because it is calculated on an increasingly smaller debt amount. This mechanism gradually lightens your interest burden and strengthens your financial security: if you sell the property or your income falls, your debt exposure is lower.
In Switzerland, mortgages are commonly structured in first and second rank. Direct amortisation most often applies to the so-called “second-rank” portion of the mortgage, which generally must be repaid within a maximum of 15 years, or at the latest by retirement age. Once that portion has been amortised, there is typically a “first-rank” mortgage remaining—often around 65% of the property value—which does not have to be amortised. Direct amortisation therefore allows you to gradually reach this target level.
From a tax perspective, direct amortisation has a double effect:
- your mortgage interest decreases over time, which reduces the tax deduction available;
- at the same time, your net worth increases, because your debt decreases.
Depending on your personal situation (income, assets, canton, planned holding period), direct amortisation may be more or less attractive than indirect amortisation. From a financial security standpoint, however, direct amortisation has the advantage of a clear and regular reduction of mortgage debt.
Example of direct amortisation
Let’s imagine a home in Switzerland financed with a mortgage of CHF 700,000. The bank requires CHF 200,000 to be amortised over 15 years, to bring the debt down to CHF 500,000 (around 50% of the property value, if it is worth CHF 1,000,000). You choose direct amortisation.
The CHF 200,000 must be repaid over 15 years. This represents direct amortisation of around CHF 13,300 per year (CHF 200,000 ÷ 15), i.e., a little over CHF 1,100 per month. This amount is in addition to the interest payment.
Assume your mortgage interest rate is 2%:
Year 1
- Debt at the start of the year: CHF 700,000
- Annual interest: CHF 700,000 × 2% = CHF 14,000
- Direct amortisation: CHF 13,300
- Debt at the end of the year: CHF 700,000 – CHF 13,300 = CHF 686,700
Year 2
- Annual interest: CHF 686,700 × 2% ≈ CHF 13,734
- Direct amortisation: CHF 13,300
- New debt: CHF 686,700 – CHF 13,300 = CHF 673,400
This process repeats every year. The direct amortisation amount remains the same (CHF 13,300 per year in this example), while interest decreases gradually thanks to the lower principal. After 15 years, you have amortised a total of CHF 200,000: the mortgage is now only CHF 500,000.
Thanks to direct amortisation, your interest costs are significantly lower than at the outset, and your financial position is stronger: the property value remains the same (or may increase), while your debt has fallen substantially. That is precisely the objective of direct amortisation: to reduce your mortgage sustainably while strengthening your financial security.
Guides about amortisation
- Mortgage rate trends in 2026
- Amortisation direct or indirect
- Abolition of the imputed rental value
