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  #21  
Old 16.01.2017, 15:51
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Re: Pledging Pillar3a as mortgage collateral

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I'm don't understand this, do you mean when someone cashed-in their P3a there is an additional 15 year mortgage issued with a rate of 6.66%?
No there is an additional mortgage when some pledges the 3a instead of cashing it in and using the money to finance the house.

Examples?

House Value 1M.
Money in saving account 100k.
Money in pillar 3a 110k.

Traditional way.
Mortgage 800k + savings of 100k + pillar 3a 100k plus pay 5k tax for cashing in pillar 3a.
You are left with 5k on pillar 3a.

Pledging (Verpfändung) way:
Mortgage 900k + saving of 100k + pledge 110k from your 3a as a collateral (you need 10% as a security).
You are left with 110k on pillar 3a.

Now the problem. Within 15 years you must amortize the mortgage down to
65% of the house value, that's the law.

In the first case you must only amortize in total 150k or 10k each year. In the second case you must amortize 250k or ~17k each year.
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  #22  
Old 16.01.2017, 16:21
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Re: Pledging Pillar3a as mortgage collateral

There is a third way (what I have):

Mortgage 800k
Cash 200k

Indirect amortisation down to 65%: 1'000k*0.65= 350k-200k(cash)=150k
150k/15years = 10k p.a. indirectly into pillar 3a.

Now the question is amortise as much as possible every 5 years or wait until
the end of the 15 year period and do it at once?

P.S. I wasn't aware that here pledging meant pledging an existing 3a vs. pledging a 3a for indirekt amortization.

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No there is an additional mortgage when some pledges the 3a instead of cashing it in and using the money to finance the house.

Examples?

House Value 1M.
Money in saving account 100k.
Money in pillar 3a 110k.

Traditional way.
Mortgage 800k + savings of 100k + pillar 3a 100k plus pay 5k tax for cashing in pillar 3a.
You are left with 5k on pillar 3a.

Pledging (Verpfändung) way:
Mortgage 900k + saving of 100k + pledge 110k from your 3a as a collateral (you need 10% as a security).
You are left with 110k on pillar 3a.

Now the problem. Within 15 years you must amortize the mortgage down to
65% of the house value, that's the law.

In the first case you must only amortize in total 150k or 10k each year. In the second case you must amortize 250k or ~17k each year.
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  #23  
Old 16.01.2017, 16:30
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Re: Pledging Pillar3a as mortgage collateral

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Now the question is amortise as much as possible every 5 years or wait until
the end of the 15 year period and do it at once?
Depends on the condition of your mortgage and how flexible it is.

As said, from a payout tax point of view you could save around CHF 500. With interest the potential saving is higher. More interest, more saving by cashing in earlier.(As said pillar 3a has a hidden capital gains tax.

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not self employed, unmarried person, no taxable church affiliation, 0 children, living in Zurich City in 2017, assuming 0% interest and CHF 6700/year added:

Payout tax for CHF 33500 (a five years saving) is CHF 1497 (or 299 per year)
for CHF 100'500 (15 year) it is CHF 4'983 (or 332 per year)
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Old 16.01.2017, 16:48
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Re: Pledging Pillar3a as mortgage collateral

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Now the question is amortise as much as possible every 5 years or wait until
the end of the 15 year period and do it at once?
If you amortize now instead of waiting further, you win corresponding part of mortgage interest payment, but lose tax savings on it, but win free market investment return on it, and lose pillar 3a return. Withdrawal tax can be basically ignored so long as it roughly stays at the same level, which it does - it's at 4-5% for any small amount, anything under 100k for sure. So:

Amortize if [mortgage rate] * (1 - [marginal income tax rate] + [post-tax free market investment return]) > [pillar 3a return].
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Old 16.01.2017, 17:08
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Re: Pledging Pillar3a as mortgage collateral

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If you amortize now instead of waiting further, you win corresponding part of mortgage interest payment, but lose tax savings on it, but win free market investment return on it, and lose pillar 3a return. Withdrawal tax can be basically ignored so long as it roughly stays at the same level, which it does - it's at 4-5% for any small amount, anything under 100k for sure. So:

Amortize if [mortgage rate] * (1 - [marginal income tax rate] + [post-tax free market investment return]) > [pillar 3a return].
I think [post-tax free market investment return] does not apply since you do not actually free up that money as it is locked in the property.
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  #26  
Old 16.01.2017, 17:11
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Re: Pledging Pillar3a as mortgage collateral

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I think [post-tax free market investment return] does not apply since you do not actually free up that money as it is locked in the property.
You free up a part of your income that used to go towards mortgage interest payment, and hence can reinvest it in a better place after amortization.

It's multiplied by mortgage rate, so the profit from it will be relatively small anyway. So unless the mortgage rates rise, or pillar 2/3 rates drop even further it probably doesn't make much sense to amortize at current typical rates. But your rates may vary of course..
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Old 16.01.2017, 22:11
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Re: Pledging Pillar3a as mortgage collateral

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it probably doesn't make much sense to amortize at current typical rates.
most banks/lenders seem to require that the loan is amortised to some degree... either directly or indirectly via a 3rd pillar. I guess this mandatory amotisation is a requirement from FINMA? Is it permitted to use an alternative investment for the mandatory amortisation of a loan? Or do FINMA stipulate that indirect amortisatin has to use a 3rd pillar?
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Old 17.01.2017, 14:39
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Re: Pledging Pillar3a as mortgage collateral

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If you amortize now instead of waiting further, you win corresponding part of mortgage interest payment, but lose tax savings on it, but win free market investment return on it, and lose pillar 3a return. Withdrawal tax can be basically ignored so long as it roughly stays at the same level, which it does - it's at 4-5% for any small amount, anything under 100k for sure. So:

Amortize if [mortgage rate] * (1 - [marginal income tax rate] + [post-tax free market investment return]) > [pillar 3a return].
In order to pledge Pillar3a, do banks require that pillar3a is held with them, or does any pillar3a account usually qualify ?
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  #29  
Old 17.01.2017, 14:56
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Re: Pledging Pillar3a as mortgage collateral

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most banks/lenders seem to require that the loan is amortised to some degree... either directly or indirectly via a 3rd pillar. I guess this mandatory amotisation is a requirement from FINMA? Is it permitted to use an alternative investment for the mandatory amortisation of a loan? Or do FINMA stipulate that indirect amortisatin has to use a 3rd pillar?
Well, finma's (or rather banks self-regulating association) rules do say that indirect amortisation is possible over pillar 3a, life insurance or other pledged "bankable assets". Ask your bank what assets they'd be willing to accept. But conditions in the end might be just as bad as pillar 3, or even worse - without the tax advantage.

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In order to pledge Pillar3a, do banks require that pillar3a is held with them, or does any pillar3a account usually qualify ?
My bank asked me to hold the fund with them, yes.
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Old 20.12.2020, 12:42
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Re: Pledging Pillar3a as mortgage collateral

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Well, finma's (or rather banks self-regulating association) rules do say that indirect amortisation is possible over pillar 3a, life insurance or other pledged "bankable assets". Ask your bank what assets they'd be willing to accept. But conditions in the end might be just as bad as pillar 3, or even worse - without the tax advantage.


My bank asked me to hold the fund with them, yes.
Now I'm getting mortgage quotes from banks and insurance.
Banks ask for direct amortisation until 65%,
Insurance asks for indirect amortisation by putting money into 3a, with mortgage remains at 85%, with slightly higher interest rate.

But seems most efficient way is take out 3a every 5 years for mortgage amortisation.
We cannot withdraw more frequently than every 5 years?

Banks require monthly amortisation, so every 5 years doesn't work for banks.
Insurance doesn't require direct amortisation, though I don't know whether they accept early amortisation without strings attached?
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Old 20.12.2020, 12:57
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Re: Pledging Pillar3a as mortgage collateral

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Now I'm getting mortgage quotes from banks and insurance.
Banks ask for direct amortisation until 65%,
Insurance asks for indirect amortisation by putting money into 3a, with mortgage remains at 85%, with slightly higher interest rate.

But seems most efficient way is take out 3a every 5 years for mortgage amortisation.
We cannot withdraw more frequently than every 5 years?

Banks require monthly amortisation, so every 5 years doesn't work for banks.
Insurance doesn't require direct amortisation, though I don't know whether they accept early amortisation without strings attached?
This may no longer be correct.

There are now very low interest rates and the 3a rules changed to allow more equity, so the balance is different.

I don't amortise my mortgage - the bank is happy to allow this as long as I have the 3a with them, so they can see I have the funds to do it when I retire.
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  #32  
Old 20.12.2020, 13:37
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Re: Pledging Pillar3a as mortgage collateral

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Banks ask for direct amortisation until 65%
Of the value, NOT the purchase price.

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But seems most efficient way is take out 3a every 5 years for mortgage amortisation.
We cannot withdraw more frequently than every 5 years?
Not from the same 3a account, which is why people often have five of them.

Tom
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Old 20.12.2020, 15:00
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Re: Pledging Pillar3a as mortgage collateral

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This may no longer be correct.

There are now very low interest rates and the 3a rules changed to allow more equity, so the balance is different.

I don't amortise my mortgage - the bank is happy to allow this as long as I have the 3a with them, so they can see I have the funds to do it when I retire.
I guess bank is happy to charge you interests on larger mortgage and enjoying security by having 3a money.

In fact I went once and told my bank I'll pay back 50% of my mortgage off - they offered me lower interests on new entire (fixed!) mortgage instead
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Old 20.12.2020, 16:00
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Re: Pledging Pillar3a as mortgage collateral

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I guess bank is happy to charge you interests on larger mortgage and enjoying security by having 3a money.

In fact I went once and told my bank I'll pay back 50% of my mortgage off - they offered me lower interests on new entire (fixed!) mortgage instead
Of course, I don't expect them to do it for nothing!
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Old 20.12.2020, 16:05
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Re: Pledging Pillar3a as mortgage collateral

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This may no longer be correct.

There are now very low interest rates and the 3a rules changed to allow more equity, so the balance is different.

I don't amortise my mortgage - the bank is happy to allow this as long as I have the 3a with them, so they can see I have the funds to do it when I retire.
Need to check with the bank, they didn’t mention amortization is not needed. Then seems there is no advantage of insurance company mortgage as their rate is higher.
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  #36  
Old 20.12.2020, 16:08
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Re: Pledging Pillar3a as mortgage collateral

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Of the value, NOT the purchase price.



Not from the same 3a account, which is why people often have five of them.

Tom
If I have 5 3a, then every year you take out 1 to amortize? Does the money go directly to the mortgage bank, or to me and I can freely choose how to amortize, or not?
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Old 20.12.2020, 16:09
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Re: Pledging Pillar3a as mortgage collateral

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If I have 5 3a, then every year you take out 1 to amortize? Does the money go directly to the mortgage bank, or to me and I can freely choose how to amortize, or not?
Depends if you're retired or not - if retired, you can do what you like.

If not retired, you can take it out for the mortgage or to leave Switzerland but not much else.
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Old 20.12.2020, 16:15
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Re: Pledging Pillar3a as mortgage collateral

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Depends if you're retired or not - if retired, you can do what you like.

If not retired, you can take it out for the mortgage or to leave Switzerland but not much else.
I’m not retired, so i can take it out for mortgage.
Then how do I pay back mortgage is up to me, i.e. money comes to my bank account and then i pay back mortgage myself? If the bank asks for monthly repay or annually
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Old 20.12.2020, 16:17
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Re: Pledging Pillar3a as mortgage collateral

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I’m not retired, so i can take it out for mortgage.
Then how do I pay back mortgage is up to me, i.e. money comes to my bank account and then i pay back mortgage myself? If the bank asks for monthly repay or annually
How you pay back the mortgage is of course up to you.

But what you do with the 3a is not, as you're not allowed to personally access it until retirement. If you want to use it for the mortgage you have to go through the mortgage and 3a provider(s) who will move it directly, not via you.
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