Lombard loan: how does it work, and when does it lose its appeal ?

A Lombard loan is an advance secured against your securities portfolio: it provides liquidity without selling the assets or interrupting their return. Its appeal rests on two conditions: a borrowing cost below the portfolio's expected return, and the tax-deductibility of the interest. Yet interest on private debt is deductible only up to the taxable yield of one's assets, plus 50,000 francs (art. 33 LIFD). When rates rise and that deduction narrows, the advantage fades.

The bank lends against the pledge value of your securities, usually a fraction of their market price. You keep the portfolio, you obtain funds, you defer the tax a sale would have triggered. But the portfolio remains the collateral. Should it fall, the bank can demand partial repayment or additional security — the margin call — at precisely the moment when selling is least favourable. Borrowed liquidity has a price: it places the estate under condition.

Two developments erode this logic. Rates first: as long as money was almost free, the gap between the cost of credit and the portfolio's return stayed favourable; that gap has narrowed. Taxation next: the interest deduction is already capped at the yield of one's assets plus 50,000 francs, and the imputed-rental-value reform will narrow it further from 2029 — to the point of removing it for anyone without rental income. The two springs of leverage — cheap money and deductible interest — give way at the same time.

The real issue is not the cost of the credit. It is its nature. As long as liquidity comes from debt, the estate depends on a third party: the bank, the markets, the rates. When it comes from the capital itself, from its recurring income, control returns to its holder. Replacing debt with flow, leverage with yield: this is not a matter of cost, it is a change of structure.

A coherent estate does not need leverage to produce its liquidity. It produces it itself. Debt merely advances it. Against a pledge. Against the rates.

Is the interest on a Lombard loan deductible ?

Yes, but within a limit: it is deductible only up to the taxable yield of your assets, plus 50,000 francs (art. 33 LIFD). From 2029, the imputed-rental-value reform will narrow this deduction further, to the point of removing it for taxpayers without rental income.

What is the main risk of a Lombard loan ?

The margin call. If the value of your pledged portfolio falls, the bank can demand repayment or additional security — often at the worst possible moment, forcing you to sell when prices are low.

Lombard loan or selling assets: how to decide ?

The comparison turns on three things: the cost of the credit against the portfolio's return, the tax effect, and the real need for liquidity. Beyond the arithmetic, the question is structural: borrowed liquidity, subject to market conditions, or liquidity drawn from the income of your own capital?