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Old 28.06.2011, 09:32
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Re: Swiss Mortgage Margin Calls

A margin call on a mortgage has nothing to do with an interest rate rise*. The banks want to maintain a specific loan to valuation (LTV) on a property - if you put down 20% deposit, then the LTV is 80%.

Should property prices fall - for whatever reason - then the ratio of the loan to the property value will increase - and they MIGHT make a margin call to cover the difference and return to the 80%.

HOWEVER here are some things to remember:
1) The margin calls in the 90s (20 years ago) were due to generous lending at 90-95%LTV. Banks no longer do that.

2) Property appreciates at around the rate of inflation - the longer you own the property the greater the reserve should property prices fall

3) If you pay off capital (IE the 2nd mortgage) either in savings or upfront payment then you are reducing your LTV - if the bank makes a margin call you should have a good chunk of it already covered.

4) If property prices do fall the bank aren't obligated to make a margin call. They may instead insist that you are re-evaluated for mortgage affordability, they may also insist that you repay capital over the next 3-5-10 years - rather than place that in savings.

We questioned our mortgage guy about this paragraph - his reply "We put that in there because the bank got burned badly when prices collapsed in the 90s. I don't think we have ever had to use it ever since"
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