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  #41  
Old 03.06.2020, 13:20
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Re: Mortgage for Dummies: Basic Question

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Yes so as I put earlier, it ends up being complex. If the bank is taking 1% of the valuation price, which is house and land, where (lets take a good guess) 1/3rd of the price is the house, they are in effect saying the house loses 3% of its value each year, i.e. in 30 years it would be worthless, while many components will last 30 years. This conversation can just go on forever there are so many variable outcomes.

Lets just agree renting is best but so is owning. then everyone is happy.
I would say the land is usually less than 2/3 cost, remember a developer will expect 30% profit gross profit margin before financing, build costs are very high as you know. When I was looking to build in 2004 in CH land would have been around 25% of the cost, interestingly the Bank wanted for me to pay for the land in full, they would finance the building costs.
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  #42  
Old 03.06.2020, 14:57
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Re: Mortgage for Dummies: Basic Question

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I am also looking around to buy a house... What I want is to be sure the place is mine no matter what. I am regularly fired as this is kind of the industry I am in (lots of outsourcing, moving abroad, startups failing etc etc).

I intend to buy using only pension fund and savings, no mortgage. Probably not the smartest thing to do but the place will be fully mine.

My concern is more, how to get the money partly out of the property once I retire (and on lower pension as its in the house). How to go in the grave 35 years from now with a big 0 in the bank (as i have no-one to leave inheritance to)?
easiest is by not putting it in to begin with...
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  #43  
Old 03.06.2020, 15:03
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Re: Mortgage for Dummies: Basic Question

i guess many things have limited useful life and will need replacing at some point. boilers, pipework, appliances.

other things get replaced due to changing styles. a 20 year old kitchen is probably functional, but may still get replaced. i just replaced a perfectly functional kitchen at great expense just to get more light.
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  #44  
Old 03.06.2020, 15:36
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Re: Mortgage for Dummies: Basic Question

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I like the idea. but in such case, the total interest rate and other costs will be higher due to the fact that Ill use different banks for different chunks of a loan. isn't it?
Very unlikely you'll be able to use different banks to finance chunks of the loan, for the simple reason the second bank will not be first in line should you default, and no bank wants to be in that position.
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  #45  
Old 03.06.2020, 15:51
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Re: Mortgage for Dummies: Basic Question

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i guess many things have limited useful life and will need replacing at some point. boilers, pipework, appliances.

other things get replaced due to changing styles. a 20 year old kitchen is probably functional, but may still get replaced. i just replaced a perfectly functional kitchen at great expense just to get more light.
You could have just smacked a hole in one of the walls.
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  #46  
Old 04.06.2020, 10:21
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Re: Mortgage for Dummies: Basic Question

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You could have just smacked a hole in one of the walls.
I removed a whole wall and looking to punch a hole in another. Both are expensive to do in Switzerland
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  #47  
Old 05.06.2020, 13:05
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Re: Mortgage for Dummies: Basic Question

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Valuation to be on the safe side. For info my parents replaced the windows & central heating in 2011 on what was then a 50 year old house, the repairs were 5 times the original purchase cost & that included the land!
The magic of inflation and compounding. Over that timespan the GBP has lost 95% of its purchase power or more, and close to 90% against the CHF.

Inflation has been largely absent around here for 20+ years, people are no longer used to considering it nowadays, especially not the UK kind with peaks above 20%.
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Very unlikely you'll be able to use different banks to finance chunks of the loan, for the simple reason the second bank will not be first in line should you default, and no bank wants to be in that position.
...and if they accept that position (2nd or 3rd mortgage and thereby rank) they will want to be reimbursed for their increased risk via higher interest rate, before ZIRP the difference between 1st and 2nd mortgage used to be 0.5%. Either way, splitting the mortgage means the debtor has zero bargaining power when the mortgage needs partial renewing.

Banks are not the customer's friend, their very business is making money off you. As a rule of thumb, whatever the bank suggests is probably as valid as a car salesman's description of that car you're eyeing.
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  #48  
Old 18.06.2020, 11:49
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Re: Mortgage for Dummies: Basic Question

Hello everyone,

Very interesting info you all have provided. Thank you.

Do you know which financial institution offers the lower rates?

Cheers,
Alex
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  #49  
Old 18.06.2020, 12:03
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Re: Mortgage for Dummies: Basic Question

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Hello everyone,

Very interesting info you all have provided. Thank you.

Do you know which financial institution offers the lower rates?
Nobody is going to be able to tell you that, it will vary depending on your exact circumstances.

You can try using comparis.ch to get a feel for who's offering the best rates, but I've found that in practice you need to go to several lenders and get quotes, which will often be lower than their published rates, and can often be made even lower if you tell them the results of your shopping around, as they'll quite likely try to undercut each other to get your business.
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Old 04.07.2020, 22:51
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Re: Mortgage for Dummies: Basic Question

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Well that's one way, in part... but...

In general, within CH the mortgage system is quite different from most other countries, most notably because for a large part of the borrowed cash there is no expectation of repayment, ever.

Most often the ratio will be 20% cash deposit, 15% repayment mortgage (i.e. you pay off the capital+interest over a set period of time, normally 15 years) and the remaining 65% on an interest-only basis, often, these days, with fixed interest rates for a given period, from one year upwards, which is renegotiated when that period expires.

This 65% portion is set to roughly equivalence the tax you'll pay on assumed rental income, which you then get back on the interest paid. And in many ways it's just like paying rent to the bank. When you die the debt and mortgage can be passed on as part of your estate, so this can continue for several generations.

Thanks for the clear explanation Ace1!


Another (basic) related Q:
I noticed that in the offer from the bank the return payment is divided into three parts:
1. Interest rate - Eff. Zinskosten

2. Amortization - dir. Amo. ab 2020

3. "Running costs" - Nebenkosten


1+2+3 = monthly return payment to the bank for the mortgage



I can understand #1 and #2.
However, what is the logic to pay Nebenkosten to the bank?


Currently, I live in an apartment and pay the Nebenkosten to the owning company (via a Verwaltung). That includes all electricity, heating etc.


I assume that if I move to my own house, I have to pay these independently and directly to the electricity company, heating etc.


why the bank charges this as part of the mortgage then...?
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  #51  
Old 05.07.2020, 09:32
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Re: Mortgage for Dummies: Basic Question

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Thanks for the clear explanation Ace1!


Another (basic) related Q:
I noticed that in the offer from the bank the return payment is divided into three parts:
1. Interest rate - Eff. Zinskosten

2. Amortization - dir. Amo. ab 2020

3. "Running costs" - Nebenkosten


1+2+3 = monthly return payment to the bank for the mortgage



I can understand #1 and #2.
However, what is the logic to pay Nebenkosten to the bank?


Currently, I live in an apartment and pay the Nebenkosten to the owning company (via a Verwaltung). That includes all electricity, heating etc.


I assume that if I move to my own house, I have to pay these independently and directly to the electricity company, heating etc.


why the bank charges this as part of the mortgage then...?
You don't it's a calculation for affordability.
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  #52  
Old 05.07.2020, 12:30
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Re: Mortgage for Dummies: Basic Question

We have been offered a mortgage with the following proposal:

Total Mortgage amount: CHF 915'000

of which
Amortisation: CHF 175'000
Remaining mortgage: CHF 740'000

1) Fixed 5 year mortgage at 0.65% on CHF 740'000
2) SARON mortgage at 0.60% on the amortisation amount of CHF 175'000

with the proviso that should the SARON start to move up, we can convert into a fixed term mortgage within 10 working days.

Would be glad to get your thoughts on the above proposal. My initial reaction would be to go for the entire chunk of CHF 915'000 at 0.65% for 5 years fixed as the SARON is already quite low.

I think the benchmark rate is currently -0.75% but the banks calculate their SARON offer from a assumed base rate of 0% and then add their margin (in this case, 0.6) on top, so as per my calculations, the 0.6% for the SARON would already represent the lowest possible rate.

Thanks in advance for your thoughts.
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  #53  
Old 05.07.2020, 16:13
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Re: Mortgage for Dummies: Basic Question

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We have been offered a mortgage with the following proposal:

Total Mortgage amount: CHF 915'000

of which
Amortisation: CHF 175'000
Remaining mortgage: CHF 740'000

1) Fixed 5 year mortgage at 0.65% on CHF 740'000
2) SARON mortgage at 0.60% on the amortisation amount of CHF 175'000

with the proviso that should the SARON start to move up, we can convert into a fixed term mortgage within 10 working days.

Would be glad to get your thoughts on the above proposal. My initial reaction would be to go for the entire chunk of CHF 915'000 at 0.65% for 5 years fixed as the SARON is already quite low.

I think the benchmark rate is currently -0.75% but the banks calculate their SARON offer from a assumed base rate of 0% and then add their margin (in this case, 0.6) on top, so as per my calculations, the 0.6% for the SARON would already represent the lowest possible rate.

Thanks in advance for your thoughts.
go on comparis.ch and have a look there. Not sure what you're expecting people to do here. Those who know wouldn't give advice to take/decline an offer and those who don't aren't very useful to you.
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  #54  
Old 05.07.2020, 16:59
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Re: Mortgage for Dummies: Basic Question

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We have been offered a mortgage with the following proposal:

Total Mortgage amount: CHF 915'000

of which
Amortisation: CHF 175'000
Remaining mortgage: CHF 740'000

1) Fixed 5 year mortgage at 0.65% on CHF 740'000
2) SARON mortgage at 0.60% on the amortisation amount of CHF 175'000

with the proviso that should the SARON start to move up, we can convert into a fixed term mortgage within 10 working days.

Would be glad to get your thoughts on the above proposal. My initial reaction would be to go for the entire chunk of CHF 915'000 at 0.65% for 5 years fixed as the SARON is already quite low.

I think the benchmark rate is currently -0.75% but the banks calculate their SARON offer from a assumed base rate of 0% and then add their margin (in this case, 0.6) on top, so as per my calculations, the 0.6% for the SARON would already represent the lowest possible rate.

Thanks in advance for your thoughts.
For a 0.05% difference with no upside and only downside, I'd just keep it simple and have it all at the same fixed rate. UNLESS the SARON mortgage gives you flexible payback options which you plan to use.
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  #55  
Old 09.07.2020, 09:00
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Re: Mortgage for Dummies: Basic Question

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For a 0.05% difference with no upside and only downside, I'd just keep it simple and have it all at the same fixed rate. UNLESS the SARON mortgage gives you flexible payback options which you plan to use.
Thanks Phil! I confirmed from the bank yesterday that we have, broadly speaking, 2 options:

1) Entire mortgage at 0.65% fixed at 5 year term
a) Either we amortise directly a set amount every quarter or half-year. This will be written into the contract and must be followed.
b) We amortise indirectly through our Pillar 3A accounts with the bank. No possibility to top up extra if we want to.
2) Amortisation portion at 0.6% SARON and rest of the mortgage at 0.65% fixed for a 5 year term
a) Either we amortise directly a set amount every quarter or half-year. This will be written into the contract and must be followed.
b) We amortise indirectly through our Pillar 3A accounts with the bank.
c) Possibility to top up with 1 extraordinary payment per half year, if we choose to do so. There is no penalty for not making the payment. This is also not written into the contract.
Given that there is no real financial benefit to amortise more than required, we will most likely put the entire mortgage at 0.65% fixed for the 5 year term and amortise indirectly into the Pillar 3A accounts already with the bank.
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  #56  
Old 10.07.2020, 21:57
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Re: Mortgage for Dummies: Basic Question

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You don't it's a calculation for affordability.

So you say that there is no connection between the actual nebenkosten that I will have to pay when owning the property and the nebenkosten that the bank calculates for mortgage purpose?


Additionally, I noticed that in the offers I received from other banks, the difference is not only in the interest % rate. Each bank present different figures for the Amortization rate as well as for the nebenkosten...


It seems to me that one bank can present an excellent interest % vs. the others. but when one looks closely, the amortization and nebenkosten amounts are higher. Therefore, the total monthly/annually return is higher.
conclusion: shall I simply look only in the bottom line, without considering the elements separately?

Last edited by aladin; 10.07.2020 at 21:59. Reason: mistyped
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