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Old 23.01.2019, 08:39
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Mortgage for new flats

Anyone has any experience regarding mortgage for new flats? I decided to buy a flat (not as an investment, but to live there long term) and the flat will be built and given to me in 1.5 years. But I have to fix my mortgage situation now and here are the troubles I have:
1. One option is to fix a forward interest rate and an exact due date with the bank, where I will receive the flat. But, if there are some delays with the construction and I miss the due date, I have to pay off all interest rates for the whole fixed timeframe, which is a very high risk.
2.Another option is set a contract with a bank for a mortgage, with interest rates unknown in the future (1.5years). Which I also do not like it.

Do you have more ideas here, how to tackle the problem with future mortgage? Is it possible if I choose point 2, to change my mind in one year and choose another bank? Or another strategy? (if the debt is cheap, I would take more mortgage, if it gets expensive, I need to calculate to see if I lower the debt or not...but it is hard to make the best strategy with unknown terms)

Also, another questions is regarding direct vs indirect amortization:
1. If I choose indirect amortization and I pay every 5 years for example to the mortgage, would I still get tax benefits in year no. 6, when depositing to 3rd pillar? Or I have to pay back what I have paid to the flat in year 5 first?
2. Can I change my mind, like take a loan of 5 years and use the indirect amortization for it and after 5 years use pension funds to pay off part of the premium. But refinance in year 6 for another 5 years, but with direct amortization (if the interest rates will be higher for example)?

Now, my 3rd pillar has an avg return of 4% per year (mutual funds), better than the interest rate of the mortgage, but lower than regular investment avg and in absolute terms, mortgage interest rate is much higher (being a higher amount). Anyone has any idea how exactly works? Searched on internet, but I could not find the exact things I asked.

Thanks a lot for the responses!
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Old 02.02.2019, 22:56
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Re: Mortgage for new flats

3rd pillar with 4% gain is pretty good, considering last year stocks crashed 10-20%... (which fund do you have?). 0.5% -2.5% is the range I would expect for 3rd Pillars last year. Maybe you quote 2017 performance...

Personally if you are under 45, I would use all 2nd/3rd pillar for downpayment of up to 35% cash that your mortgage provider will require.
#1: you unlock all (your otherwise blocked) money.
#2: any other money you may have, you can invest it in good quality stocks which, long term, normally bring much higher returns (if wisely invested).

I am currently also considering buying property, with some candidates identified (all feel over priced though).

My points are:
A. Getting into a mortgage gives me/us access to very cheap money. With it I can afford a flat at half its normal rent.
B. I can put into work my 2/3 Pillar... (in avg I got less than 0.5% for the 3rd, less than 2.5% in the 2nd ! )
C. And what about the big liability in 10 years from now ?
My view is: low/very-low interest rates are here to stay (see reason below)...
D. I am also confident I can save enough during 10 y, to reduce the liability, if need be.
E. As said in #2, I am also (relatively) confident that long term my other cash can deliver more out of the pillars system (ie. invested wisely in the market)

Does any of the above make sense to you?

Of course I speak for myself, and we all have different personal situations ! ;-)




=============
Current view:
Low interest rates in Europe are consequence of the poor financials of southern EU governments ('pigs'+france). Their national debt is only sustainable with very low interest rates... Governments in France, Italy, Spain have increased debt rather than reducing it. They enjoyed spending for years, without telling next generations would be paying for it. These are 2,3,4th largest EUR economies, and I have not seen their governments to make deep structural reforms and change gears... and I don't see it in the foreseeable future.
Actually, last year some big guys in EU Central Bank stressed the need to consider rising interest rates. It seems economies prepared for that, and as a result both Italy and Germany entered recession recently (GDP decrease for 2 consecutive quarters)... The possibility of rising interest rates seems to have disappeared of the 2019 agendas, as of now.

Again the opinion above is personal. If you want to comment, feel free... ;-)
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Old 03.02.2019, 09:02
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Re: Mortgage for new flats

Thanks for the answers!

4% was actually before the end of the year last year , it is just an average in the last years, but in special last year was not a good one.

I am 35, so much under 45, but I was thinking the other way around: to get a higher loan as possible, because the interest rates are lower now. For example, if we do this:
1. For a loan of 1.000.000 (easier to calculate), 10% have to be cash (100.000) and 10% cash from pension funds. And optionally 15% from the pension funds as well to withdraw everything.
2. This means, I get out 250.000 CHF from pension funds. If I calculate avg returns of 3% to them, I get 7.500 CHF from interest rate from pension funds, if the money would still be there.
3. In any case, I still have to pay 10% cash, so I do not get now leverage. I will get in 15 years time, when I have my amortization finished. But if I project the compound interest rate for the pension funds, gets also a good value till then (small interest rate on higher amount is still good).

So, if I pay more from pension funds, I still lose some money from my accounts now, which could generate some extra income. If I could have transferred the money from the pension account to my normal ones, so I get extra cash for my investments, this would have been a different story, but at the end in both cases I am using 10% my own cash. And indeed, I can get higher returns in % per year than my pension funds, but lower % for a bigger amount now, still can be better than higher % for smaller amounts in 15 years time. But indeed, money remains blocked in the pension funds...

But totally agree with the current view of ECB policies and macroeconomics. I see a small risk for the interest rates to go up in the near future.

My current status with the flat now is: I identified the object and trying to reserve it, but I do not like something from it...one sentence: "Diese Teilzahlung ist weder zu ver-zinsen noch sicherzustellen."
It is a new flat, so they require the 20% first payment now, but this big payment is not secured, as I understand with my limited German from above.

Any experience this this kind of contracts?
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Old 03.02.2019, 09:26
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Re: Mortgage for new flats

So what happens when the flat is built & the Banks says it's worth 30% less than you are going to pay? This has happened a lot in London over the last 5 years.

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Thanks for the answers!

4% was actually before the end of the year last year , it is just an average in the last years, but in special last year was not a good one.

I am 35, so much under 45, but I was thinking the other way around: to get a higher loan as possible, because the interest rates are lower now. For example, if we do this:
1. For a loan of 1.000.000 (easier to calculate), 10% have to be cash (100.000) and 10% cash from pension funds. And optionally 15% from the pension funds as well to withdraw everything.
2. This means, I get out 250.000 CHF from pension funds. If I calculate avg returns of 3% to them, I get 7.500 CHF from interest rate from pension funds, if the money would still be there.
3. In any case, I still have to pay 10% cash, so I do not get now leverage. I will get in 15 years time, when I have my amortization finished. But if I project the compound interest rate for the pension funds, gets also a good value till then (small interest rate on higher amount is still good).

So, if I pay more from pension funds, I still lose some money from my accounts now, which could generate some extra income. If I could have transferred the money from the pension account to my normal ones, so I get extra cash for my investments, this would have been a different story, but at the end in both cases I am using 10% my own cash. And indeed, I can get higher returns in % per year than my pension funds, but lower % for a bigger amount now, still can be better than higher % for smaller amounts in 15 years time. But indeed, money remains blocked in the pension funds...

But totally agree with the current view of ECB policies and macroeconomics. I see a small risk for the interest rates to go up in the near future.

My current status with the flat now is: I identified the object and trying to reserve it, but I do not like something from it...one sentence: "Diese Teilzahlung ist weder zu ver-zinsen noch sicherzustellen."
It is a new flat, so they require the 20% first payment now, but this big payment is not secured, as I understand with my limited German from above.

Any experience this this kind of contracts?
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Old 03.02.2019, 09:33
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Re: Mortgage for new flats

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I was thinking the other way around: to get a higher loan as possible, because the interest rates are lower now.
Just an FYI wrt potential changes around home ownership financing policy:

Along with abolition of Eigenmietwert current proposals also are set to significantly limit deductions, including limits to mortgage interest deductions.

Final changes have not been announced AFAIK, expected this quarter.

So - if tax advantage to the current system of deducting mortagage interest rates figures into your calculations of financing, you might want to keep the proposed changes in mind.
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Old 03.02.2019, 09:35
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Re: Mortgage for new flats

I assume there is a higher probability to not happen like that (30% value loss in real estate in 1 year in Switzerland), but in case there would happen, because I am planning to live there long term, I would probably pay for the difference (I do have the money now to cover this risk, but I do not want to use them, unless really necessary). Or maybe negotiate with the bank a better deal (20% loss for me vs 30% loss for the bank it is bad for both of us...)
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Old 03.02.2019, 09:41
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Re: Mortgage for new flats

Thanks @meloncollie for the info!

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So - if tax advantage to the current system of deducting mortagage interest rates figures into your calculations of financing, you might want to keep the proposed changes in mind.
This would have been a nice thing, indeed, but it is not the only one. It is also the fact that I can use 10% of the cash now to generate more income. But very good information to add to my projections...so I would have more realistic numbers.
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Old 03.02.2019, 09:42
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Re: Mortgage for new flats

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So what happens when the flat is built & the Banks says it's worth 30% less than you are going to pay? This has happened a lot in London over the last 5 years.
The bank actually valued ours at more than what we paid.

Tom
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Old 03.02.2019, 09:43
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Re: Mortgage for new flats

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I assume there is a higher probability to not happen like that (30% value loss in real estate in 1 year in Switzerland), but in case there would happen, because I am planning to live there long term, I would probably pay for the difference (I do have the money now to cover this risk, but I do not want to use them, unless really necessary). Or maybe negotiate with the bank a better deal (20% loss for me vs 30% loss for the bank it is bad for both of us...)
The loss is entirely yours, the bank won't advance the loan.
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Old 03.02.2019, 10:29
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Re: Mortgage for new flats

In canton of Vaud certainly, you also need a further5% on purchase price, to pay for the notary and cantonal/communal taxes
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Old 03.02.2019, 10:34
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Re: Mortgage for new flats

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In canton of Vaud certainly, you also need a further5% on purchase price, to pay for the notary and cantonal/communal taxes
5% seems really steep. Our costs for purchasing first flat in CH were less than 1% of purchase price and at a guess (without digging out the paperwork) possibly even just 0.5%.
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Old 03.02.2019, 10:34
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Re: Mortgage for new flats

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In canton of Vaud certainly, you also need a further5% on purchase price, to pay for the notary and cantonal/communal taxes
3% or so here, 15k on 465k purchase price.

Tom

Last edited by st2lemans; 03.02.2019 at 11:22. Reason: spelling
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Old 03.02.2019, 10:34
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Re: Mortgage for new flats

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5% seems really steep. Our costs for purchasing first flat in CH were less than 1% of purchase price and at a guess (without digging out the paperwork) possibly even just 0.5%.
Depends on the canton.

Tom
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Old 03.02.2019, 11:21
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Re: Mortgage for new flats

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5% seems really steep. Our costs for purchasing first flat in CH were less than 1% of purchase price and at a guess (without digging out the paperwork) possibly even just 0.5%.

Very much depends on canton


In Vau d it is the buyer who pays the notary 3.3% for cantonnal and communal taxes to start with and his fee on top of this is around 1 -1.5% depending on a variety of factors, but rest assured, their is a very strong cartel with official prices and absolutly NO HINT of any competition in the market.....


If i come back from the dead i wish to be a Swiss notary, guaranteed income for doing bugger all, for life.....


I think in Basel notary costs are split 50/50 between buyer/seller but i don't know about taxes.


All depends where you bought, but i very much doubt a notary would go for less than 1% of purchase price unless it was very expensive or a deal done for the whole block of flats whereby he acted as exculsive notary for the whole block.
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Old 03.02.2019, 11:44
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Re: Mortgage for new flats

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i very much doubt a notary would go for less than 1% of purchase price unless it was very expensive or a deal done for the whole block of flats whereby he acted as exculsive notary for the whole block.
The fees were split 50/50, so I guess they were between 1 and 2% of the sale-purchase price overall.
Our first flat was over Fr. 200'000.-- and our fees were less than Fr. 2'000.--, which is why I said we paid less than 1%.

We utilised the same notary office a few years later when we sold it and exactly the same procedure/rates were applied.

There were also no local taxes when purchasing, or if there were these were included in the bill we received from the notary. So still less than 1% overall.
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Old 03.02.2019, 12:33
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Re: Mortgage for new flats

So, coming back to the original question, does anyone has experience with this extra sentence in the contract: "Diese Teilzahlung ist weder zu ver-zinsen noch sicherzustellen." for the 20% advance payment for a future flat (will be built end of next year)? For me does not sound safe and I would like it removed, but what would be the implications? Why having that sentence in the contract in the first place?
I will anyhow have this discussion with them, but it is helpful if someone went through this before.
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Old 03.02.2019, 12:47
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Re: Mortgage for new flats

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The fees were split 50/50, so I guess they were between 1 and 2% of the sale-purchase price overall.
Our first flat was over Fr. 200'000.-- and our fees were less than Fr. 2'000.--, which is why I said we paid less than 1%.

We utilised the same notary office a few years later when we sold it and exactly the same procedure/rates were applied.

There were also no local taxes when purchasing, or if there were these were included in the bill we received from the notary. So still less than 1% overall.



As we all know dear chap, Cantonal, cantonal
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Old 03.02.2019, 12:49
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Re: Mortgage for new flats

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So, coming back to the original question, does anyone has experience with this extra sentence in the contract: "Diese Teilzahlung ist weder zu ver-zinsen noch sicherzustellen." for the 20% advance payment for a future flat (will be built end of next year)? For me does not sound safe and I would like it removed, but what would be the implications? Why having that sentence in the contract in the first place?
I will anyhow have this discussion with them, but it is helpful if someone went through this before.

Get it removed if you're not happy with it, either they'll agree and sign or not, nobody here can give you a definite answer one way or the other, a contract is usually negotiated between 2 parties, agreed upon and signed.


No agreement, no signature, no contract
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Old 03.02.2019, 17:12
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Re: Mortgage for new flats

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5% seems really steep. Our costs for purchasing first flat in CH were less than 1% of purchase price and at a guess (without digging out the paperwork) possibly even just 0.5%.
I think you are rightfully correct at your guesstimate of 0.5% !

That's a great advantage of ZRH (FYI: GR transactions are taxed at 7%!! ;-) )
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Old 03.02.2019, 17:24
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Re: Mortgage for new flats

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I think you are rightfully correct at your guesstimate of 0.5% !

That's a great advantage of ZRH (FYI: GR transactions are taxed at 7%!! ;-) )



You mean you don't know for sure (does this include commune/canton taxes) and you looking to buy storage units in Zurich !!!!!!!!!!!!!!!!!!!!
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