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-   -   Clarification on Mortgages (https://www.englishforum.ch/finance-banking-taxation/303154-clarification-mortgages.html)

kavehentezar 15.03.2021 02:56

Clarification on Mortgages
 
Hi everyone,

I have been reading the posts on EF and yet I have some unanswered questions.

- Assuming getting a mortgage to buy a property for yourself, why should that person pay 1% value of the property as a cost to the bank?!!!!

- Reading UBS website, says each property requires max 2 mortgages (13% and 67% +20% down payment). the 13% should be paid within 15 years. Why some people say then another mortgage is required. why?!!!

- Let's say I want to have my first property and I have 20% of it ready and I get the mortgage. Then after 6-7 years, I pay off that 13% of the mortgage.
If I want to buy another property, do I have to pay again 20% of the new property, or I can use the current property as an equity? Do I have better condition to get a mortgage for a new property?

Thanks

p42 15.03.2021 03:32

Re: Clarification on Mortgages
 
The 20% deposit is more or less a minimum deposit these days. Depending on how much income you get from the first property, 6% springs to mind, the first property can be a negative impact on you ability to buy another.

Your best bet is to get the yield up of the first property, don't try and pay the 13% but use that as deposit for the next property.

spark 15.03.2021 07:09

Re: Clarification on Mortgages
 
Quote:

Originally Posted by kavehentezar (Post 3285624)
- Assuming getting a mortgage to buy a property for yourself, why should that person pay 1% value of the property as a cost to the bank?!!!!

Uhm, why indeed? He shouldn't. The only cost you pay is interest, quite a bit below 1% today. Amortisation is not cost, it's a repayment of your debt.


Quote:

Originally Posted by kavehentezar (Post 3285624)

- Reading UBS website, says each property requires max 2 mortgages (13% and 67% +20% down payment). the 13% should be paid within 15 years. Why some people say then another mortgage is required. why?!!!

Historically, the interest-only part of the mortage was called "1. Hypothek", and the part that you're required to linearly amortize within 15 years - "2. Hypothek". In practice today most banks i think don't make the distinction anymore. Usually you would just have one mortgage contract for the whole amount. It will be *very* difficult to split the mortgage between different banks.


Quote:

Originally Posted by kavehentezar (Post 3285624)
- Let's say I want to have my first property and I have 20% of it ready and I get the mortgage. Then after 6-7 years, I pay off that 13% of the mortgage.

If I want to buy another property, do I have to pay again 20% of the new property

Yes


Quote:

Originally Posted by kavehentezar (Post 3285624)

or I can use the current property as an equity?

You mean you give the seller 80% mortgage cash from the bank and 20% as part ownership in your existing property? I don't think you'll find many persons interested in such an exotic deal. Most sellers want 100% hard cold cash. Of which at least 20% has to come from you, this is a requirement from FINMA (Mindestanforderungen bei Hypothekarfinanzierungen), not some banks' own made-up rules.

NotAllThere 15.03.2021 09:51

Re: Clarification on Mortgages
 
Quote:

Originally Posted by kavehentezar (Post 3285624)
- Reading UBS website, says each property requires max 2 mortgages (13% and 67% +20% down payment). the 13% should be paid within 15 years. Why some people say then another mortgage is required. why?!!!

Why? No idea. Who are these "some people" who are saying this?

I paid my 2nd tranche mortgage off yonks ago. I have two mortgages in the 1st tranche, one with 9 years to go and one with 3 years to go. Both fixed rate, interest only.

I think you're very confused. Have you considered getting professional advice? Or perhaps let some other people handle your clearly very large capital assets - you don't seem awfully competent. :rolleyes:

peaky 15.03.2021 11:05

Re: Clarification on Mortgages
 
I dont understand much, but this is what I have picked up on mortgages here over the years and recently looking into it myself

- 20% is the minimum deposit. Of which at least 10% should be cash, ie not your pensions.
- A total of 35% has to be paid off by the time you are 65 years old. Therefore 15% - the younger you are the cheaper the repayments as more time to pay.
- The remaining amount you keep as a mortgage effectively paying interest only. This debt will pass to your descendants but it is kept as a debt to off set the tax you would pay if you owned it out right. The tax being the potential rental value that property could earn
- The 1% in the UBS mortgage calculator is an affordability test. I dont think this is paid to the bank, but if your salary wont cover this you fail the affordability test. This value I think is a guide only.
- You shouldnt forget the fees and taxes, which in percentage terms are low for the rest of Europe but on such expensive properties in cash terms are huge. 3-4% or of course on a million chuff property 30-40k CHF

We had a conversation with the bank briefly and they were saying for example the fees could be in the mortgage if the bank feels the property is under valued. But in their view everything (in the Zurich area at least) is highly over valued, and the bank guy explained, if you had cash to buy the property you would find it difficult to find a property. The demand is high at the moment and limited supply.

jim1 15.03.2021 12:00

Re: Clarification on Mortgages
 
Quote:

Originally Posted by kavehentezar (Post 3285624)
Hi everyone,

I have been reading the posts on EF and yet I have some unanswered questions.

- Assuming getting a mortgage to buy a property for yourself, why should that person pay 1% value of the property as a cost to the bank?!!!!

- Reading UBS website, says each property requires max 2 mortgages (13% and 67% +20% down payment). the 13% should be paid within 15 years. Why some people say then another mortgage is required. why?!!!

- Let's say I want to have my first property and I have 20% of it ready and I get the mortgage. Then after 6-7 years, I pay off that 13% of the mortgage.
If I want to buy another property, do I have to pay again 20% of the new property, or I can use the current property as an equity? Do I have better condition to get a mortgage for a new property?

Thanks

What are you trying to do with the 2nd property - buy a holiday home for personal use or rent out (investment property) ? As the answer depends

energyale 15.03.2021 12:07

Re: Clarification on Mortgages
 
Maybe have a look at this and then consult a professional with your short and long term plans, https://www.swissbanking.org/library...finanzierungen

jim1 15.03.2021 13:19

Re: Clarification on Mortgages
 
Quote:

Originally Posted by energyale (Post 3285728)
Maybe have a look at this and then consult a professional with your short and long term plans, https://www.swissbanking.org/library...finanzierungen

In addition there is an affordability stress test calculated at 5% interest rate plus maintenance ~1% of the property value per year
  • For properties used by you the resulting amount must be <1/3 of your personal income
  • For a rental property the rent has to cover this amount

For 2nd homes I believe banks will lend at ~65% not 80%

kavehentezar 15.03.2021 13:45

Re: Clarification on Mortgages
 
Quote:

Originally Posted by jim1 (Post 3285724)
What are you trying to do with the 2nd property - buy a holiday home for personal use or rent out (investment property) ? As the answer depends

I am considering the first property for renting, and 2nd one for myself.

Guest 15.03.2021 13:56

Re: Clarification on Mortgages
 
Quote:

Originally Posted by kavehentezar (Post 3285809)
I am considering the first property for renting, and 2nd one for myself.

You need to be aware that a mortgage for a non-primary residence will normally be at a higher rate of interest. In my experience, that is, when I was getting quotes from several banks, and one was much higher than the others, as they hadn't realised it would be our primary residence. They changed it as soon as we pointed it out, and that was actually the one we went with in the end, as they'd undercut the best other offer once we'd shown it to them.

cyc 15.03.2021 15:27

Re: Clarification on Mortgages
 
Quote:

Originally Posted by peaky (Post 3285686)
- A total of 35% has to be paid off by the time you are 65 years old. Therefore 15% - the younger you are the cheaper the repayments as more time to pay.

I think this is incorrect. It's 35% has to be paid off within 17 years (not 100% sure on the exact number). But I guess it's probably whichever comes first (65 years vs. 17 years from day of mortgage).

jim1 15.03.2021 15:46

Re: Clarification on Mortgages
 
Quote:

Originally Posted by kavehentezar (Post 3285809)
I am considering the first property for renting, and 2nd one for myself.

For the first, rental property you need to find min 25% deposit plus purchase and mortgage taxes and rent must be > (5% of mortgage + 1% of property value). You also need to amortise the loan to 2/3 of property value in 10 years (not 15).

If you buy a 2nd property for yourself to live in afterwards you need to come up with the 20%. I am not aware if there are any rules preventing you from re-mortgaging the 1st property to free up funds. Check with a bank?

spark 15.03.2021 15:52

Re: Clarification on Mortgages
 
Quote:

Originally Posted by cyc (Post 3285849)
I think this is incorrect. It's 35% has to be paid off within 17 years (not 100% sure on the exact number). But I guess it's probably whichever comes first (65 years vs. 17 years from day of mortgage).


Incorrect. The exact FINMA rule is:



"Die Hypothekarschuld ist innert maximal 15 Jahren auf 2/3 des Belehnungswertesder Liegenschaft zu amortisieren. Diese Amortisation hat linear zu erfolgen, beginnend spätestens 12 Monatenach der Auszahlung."


The bank will evaluate this rule once at the start of your mortgage contract and set amortization amount such that if it you were to pay it for 15 years, you'd end up at 2/3 of bank's valuation of the property. Which can very well be below what you bought it for.

Nbasel 13.10.2021 16:20

Re: Clarification on Mortgages
 
What is not clear to me over all is the following:

Let's say I ask 1M to the bank as 80% of the property value, so I anticipate 200k as the 20%.
Should I also anticipate from, as cash, all the fees, let's say 4% so in total I need to have 24% ready in my bank account.

In other words the bank will not provide to me the 80% + additional costs like fee, notary cost and so on?

Thank you

ND

Biro 13.10.2021 16:42

Re: Clarification on Mortgages
 
Quote:

Originally Posted by Nbasel (Post 3355843)
What is not clear to me over all is the following:

Let's say I ask 1M to the bank as 80% of the property value, so I anticipate 200k as the 20%.
Should I also anticipate from, as cash, all the fees, let's say 4% so in total I need to have 24% ready in my bank account.

In other words the bank will not provide to me the 80% + additional costs like fee, notary cost and so on?

Thank you

ND


20% cash + notary fees etc is what you need, the bank will finance about 80% of THEIR valuation

peaky 13.10.2021 16:59

Re: Clarification on Mortgages
 
Quote:

Originally Posted by Nbasel (Post 3355843)
What is not clear to me over all is the following:

Let's say I ask 1M to the bank as 80% of the property value, so I anticipate 200k as the 20%.
Should I also anticipate from, as cash, all the fees, let's say 4% so in total I need to have 24% ready in my bank account.

In other words the bank will not provide to me the 80% + additional costs like fee, notary cost and so on?

Thank you

ND

The bank could roll up the fees into the mortgage if the property was selling under valuation. Which currently is lets say impossible. You currently may have to bridge the delta between the banks valuation and the selling price or almost certainly go into the banks tolerance margin.

You can have 10% cash, and you can pledge 10% from your pensions. If the bank agree to this. Essentially the 10% is the safety net and if you default the bank will take the money from your pension. Its interesting for the bank and you I think. You only put down 10% and the low interest rates means the repayments are ok. You free up your cash for other things.

The notary fees and taxes depend where you live. If you live in a kanton which has state notary's, the fees are quite cheap - a few thousand (Zurich for example). If you live in a kanton where its private notary, the fees will be quite high - perhaps 4% (although in percentage terms still low compared to other countries)

LuganoPirate 13.10.2021 17:18

Re: Clarification on Mortgages
 
The 80% mortgage talked about is the amount a bank will lend on their valuation of the property, which is often less than the sales price. Eg. CHF 1m property, but bank valuation is only CHF 900,000, you'd have to find an extra CHF 100,000. It is possible with some banks to borrow the full 80% of the sale price, but the second tranche will be at a higher interest rate, currently 2.76% with Raiffeisen.

If you're buying a second home to rent out, the bank will take into account the rental income as part of their affordability calculation. However, there is no reason why they would charge you more interest than they would for a primary residence. At least not in my experience.

I'd also suggest getting 3 offers. From the bank you like and 2 others. Then you can go back and say, "look I want to be with you, but I have better offers here, will you match it"? Chances are they will.


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