Direct Amortization

In direct amortization, unlike indirect amortization, each amortization payment made is deducted directly from outstanding mortgage debt.

The mortgage is gradually reduced over the amortization schedule, which also lowers mortgage interest charges. Direct amortization can make sense if you want to lower your debt, and subsequent interest payments. For example, you may want to cut down your mortgage expenses if you expect your income to drop in the future.

Because mortgage interest payments are tax-deductible, direct amortization leads to an increase in tax payments.

This leads to a direct increase in taxes, and if a reduction in your interest payments causes you to fall into a different tax bracket, your tax ratio may also increase.

A direct amortization can also negatively impact wealth tax, because less mortgage debt can be deducted from taxable personal wealth. This issue primarily affects high-net-worth individuals.

More information:
Mortgages in Switzerland compared
First mortgage - simply explained
What is a loan-to-value ratio?
What is a second mortgage?
Indirect Amortization - simply explained
Amortization - simply explained

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Expert Felix Oeschger
Felix Oeschger is an analyst and expert at moneyland.ch. He is responsible for several core topics.