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Old 28.07.2010, 17:04
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Morgage Terms

We need to renew our morgage/s in the next few days. Morgage rates are very low at the moment and it would seem wise to go for a fixed term contract.
I have, however, also been tolds that it might be worthwhile, from a tax liability perspective, to pay off a mortgage from 2012 onwards. It seems that a a referendum next year might eliminate the current requirement to pay tax on the notional rental value of a property(Eigenmietwert), as has hitherto been the case, and that morgage payments would then no longer be tax-deductible. Should this happen we would probably be better off not having a morgage. This seems to be the strongest argument against going for a longer-term fixed term morgage.
Very long term morgages (8 or 10 yrs) are, of course, also relatively expensive.
I would greatly welcome any comments and (subjective, non-professional) advice about whether to go for a fixed-term,and if so, for how long, since I have to decide extremely urgently.
Cheers,
Franklyn

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Old 28.07.2010, 17:11
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Re: Morgage Terms

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We need to renew our morgage/s in the next few days. Morgage rates are very low at the moment and it would seem wise to go for a fixed term contract.
I have, however, also been tolds that it might be worthwhile, from a tax liability perspective, to pay off a mortgage from 2012 onwards. It seems that a a referendum next year might eliminate the current requirement to pay tax on the notional rental value of a property(Eigenmietwert), as has hitherto been the case, and that morgage payments would then no longer be tax-deductible. Should this happen we would probably be better off not having a morgage. This seems to be the strongest argument against going for a longer-term fixed term morgage.
Very long term morgages (8 or 10 yrs) are, of course, also relatively expensive.
I would greatly welcome any comments and (subjective, non-professional) advice about whether to go for a fixed-term,and if so, for how long, since I have to decide extremely urgently.
Cheers,
Franklyn
but does anyone have an idea of how likely it is that this new rule will actually happen and how the transition would work? it would be a massive change.
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Old 28.07.2010, 17:11
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Re: Morgage Terms

This has been answered elsewhere.

1) Yes there is talk of a referendum
2) It will only take away the tax deductible element of mortgage payments
3) It is unlikely go pass a referendum
4) It is unclear whether there will be an exclusion for primary residence

10 years are relatively expensive compared to libor. The curve has flattened noticably in the last 6 months. Then I would have advised locking into 10 years if you could.

Fixed is paying someone else to hold your risk - depending on your own personal view will depend on whether you go 3mth libor or fix longer term. The accepted wisdom in Switzerland (now and over the last few years) is to split into tranches
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Old 28.07.2010, 17:21
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Re: Morgage Terms

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but does anyone have an idea of how likely it is that this new rule will actually happen and how the transition would work? it would be a massive change.
It would/will be a massive change, for some. There is at least one counter proposal from the Hauseigentermersverband (HEV (House owners' Union)) to try and water down the proposal. This is because many of their members are owners of blocks of flats and this would be a major shift for many members.

I would say that even if if the government's original proposal of ending both mortgage interest relief and Eigenmietwert were passed, it would be another 5 year before it came into effect fully and there could well be a longer transition period.

Like most things here, it will come slowly and gently so as not to rock the boat. Mortgagees should be adjusting their arrangements now with a view to this happening. The reality is that for most private home owners it will make very little difference and if super-low interest rates continue, could well be an advantage for many...
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Old 28.07.2010, 17:27
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Re: Morgage Terms

Hi Baselinstincts - I recently took out a mortgage with this in mind also. Was able to fix for 3 years at 1.2% with Credit Suisse.

My thinking was that if Emw was abolished it would be sensible to pay the mortgage off, or alternatively if interest rates went up massively, it may also be worth paying off, but that if Emw remains and mortgage rates are low, then stick with the Mortgage.

Fingers crossed eh?
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Old 28.07.2010, 17:32
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Re: Morgage Terms

3) It is unlikely go pass a referendum

Thanks for your comments. I think you`re right. I suspect the current arrangement suits the banks and the construction industry and the current set-up will prevail.
We curently have two tranches and I think it is probably a good idea to continue with his arrangement - or possibly even to go for a third.
Thanks again,
F
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Old 28.07.2010, 17:35
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Re: Morgage Terms

Interesting.

It seems for larger business / associations it might be good if this doesn't get passed, but every Swiss individual I have spoken to will be voting to abolish it and believe it will be abolished this time. Shame there are no bookies in Switzerland
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Old 28.07.2010, 17:53
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Re: Morgage Terms

One thing that isn't clear is whether tax relief on maintenance of capital will still be allowed. At the moment replacing a kitchen can be offset against income - as you are maintaining the value of the property - as opposed to increasing it.

The same is also true of materials for decorating and structural changes to the garden.

The rules are very fuzzy on what counts for each - so if you are in any doubt speak to a tax consultant on the matter.

Any indvidual voting for a change should be cogniscant that such a change might well be the thin end of the wedge for property deductions.
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Old 28.07.2010, 17:54
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Re: Morgage Terms

I have attached a pdf of an interesting article in the Aargauer Zeitung which shows that someone who took a CHF 500'000 Libor mortgage in 1999 would have saved CHF 117'000 over 10 years against someone who took a 5-year fixed mortgage. The conclusion is that Libor mortgages are, on average lower in Switzerland than fixed-term mortgages.
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File Type: pdf Article about mortgages.pdf (892.3 KB, 626 views)
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Old 28.07.2010, 18:42
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Re: Morgage Terms

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I have attached a pdf of an interesting article in the Aargauer Zeitung which shows that someone who took a CHF 500'000 Libor mortgage in 1999 would have saved CHF 117'000 over 10 years against someone who took a 5-year fixed mortgage. The conclusion is that Libor mortgages are, on average lower in Switzerland than fixed-term mortgages.
It is worth noting that interest rates over the last 10 years have been at a historical low. Whether that holds true over the long term is a different story.

Fixing rates is you paying someone else to carry your risk. If you are happy to pay whatever that margin is to ensure your cashflows (outgoings) are consistent then that is a matter of personal risk assessment.

Those sort of articles look great with the benefit of hindsight.

For those with some risk tolerance - a 50/50 split between med/long term fixed - and libor tracker offers the best balance.
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Old 28.07.2010, 18:47
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Re: Morgage Terms

What are the best rates banks are offering for > 5 years fixed? I wouldn't fix for any less time than that.

The CS website says > 2.4%, but what rates are people being offered out there?
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Old 28.07.2010, 18:54
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Re: Morgage Terms

As a CS employee, my 5 year fixed was 1.6, but to the general public would be 0.6% higher - have rates jumped up again in the last week?
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Old 28.07.2010, 18:59
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Re: Morgage Terms

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What are the best rates banks are offering for > 5 years fixed? I wouldn't fix for any less time than that.

The CS website says > 2.4%, but what rates are people being offered out there?
UBS have rates on their site too. i was looking at 10 year fix for one portion and libor for the other.
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Old 28.07.2010, 19:01
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Re: Morgage Terms

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As a CS employee, my 5 year fixed was 1.6, but to the general public would be 0.6% higher - have rates jumped up again in the last week?
The 1-month libor reduced a little since last month I believe. Our mortgage rolls over on the 3rd and last month it went down from the month prior.

CS currently gives us a .7% discount off their published rate - no working for them needed (hubbie was working for the other bank at the time). He just finished off his contract at CS 2 weeks ago though
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Old 28.07.2010, 19:17
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Re: Morgage Terms

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CS currently gives us a .7% discount off their published rate - no working for them needed (hubbie was working for the other bank at the time). He just finished off his contract at CS 2 weeks ago though
ZKB did something similar for us - with never having worked or banked with them - except for holding our flat deposit!
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Old 28.07.2010, 20:08
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Re: Morgage Terms

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The same is also true of materials for decorating and structural changes to the garden.

The rules are very fuzzy on what counts for each - so if you are in any doubt speak to a tax consultant on the matter.
I did just that a couple of weeks ago. The considered opinion was "we'll put through as much as we think we can get away with and see what they'll accept" - in other words, it's at the discretion of the individual processing your tax return. And if they're being stingy, you can always argue it too
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Old 28.07.2010, 22:23
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Re: Morgage Terms

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What are the best rates banks are offering for > 5 years fixed? I wouldn't fix for any less time than that.

The CS website says > 2.4%, but what rates are people being offered out there?

We`ve been with the Raiffeisen for general banking and also for the mortgage for the last 5 years. (We also do a relativly small amount of Asset Mismanagement with them although most assets are with a very small private bank). Our asset portfolio at the RB has a larger value than the sum of the two mortgage tranches we owe them, but so far the best can get fom the is 2,8% for a ten year fixed-period mortgage. One tranche (equal to aut 1/3 of the mortgage currently has a variable rate and the other is now due for renewal. In the light of coments here I think I should aim to re-negotate the mortgages along the lines of 1/4 to 1/3 as a Libor mortgage and the rest as a ten-year tranche at 2,8% or better. History seems to suggest that inflation is normally the way forward when counties have a bad debt problem, and even in Switzerland I have the impression that inflation is already present in some sectors- at least when reviewing the quotations that people who call themselves "Handwerker" present. I would certanly welcome any further advice or comments.

F
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Old 28.07.2010, 23:03
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Re: Morgage Terms

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We`ve been with the Raiffeisen for general banking and also for the mortgage for the last 5 years. (We also do a relativly small amount of Asset Mismanagement with them although most assets are with a very small private bank). Our asset portfolio at the RB has a larger value than the sum of the two mortgage tranches we owe them, but so far the best can get fom the is 2,8% for a ten year fixed-period mortgage. One tranche (equal to aut 1/3 of the mortgage currently has a variable rate and the other is now due for renewal. In the light of coments here I think I should aim to re-negotate the mortgages along the lines of 1/4 to 1/3 as a Libor mortgage and the rest as a ten-year tranche at 2,8% or better. History seems to suggest that inflation is normally the way forward when counties have a bad debt problem, and even in Switzerland I have the impression that inflation is already present in some sectors- at least when reviewing the quotations that people who call themselves "Handwerker" present. I would certanly welcome any further advice or comments.

F
Ten years is a long time. But our Cantonal bank does think that interests rates (their mortgages on fixed terms are 2,7-2,8% -- I don't know where these <2% rates are available...) will rise. Probably true if inflation in the US (and perhaps economic disaster) happens the way Martin Wolf in today's FT is opining.

We've moved enough assets to Switzerland to cover the eventual repayment of our residential mortgage, and if we hadn't fixed the rate for 5 years we'd probably pay it off now. As I've said elsewhere, there is so much doubt in the markets over USD, GBP and EUR that serious money is going into SGD and CHF, swamping those little countries that can't absorb the inflows. And are having a hard tie neutralising them.

Let it be said, though, that I don't give out investment advice for free or otherwise. The foregoing is for amusement purposes only.

BTW, as for Raiffeisen, isn't that the bank that got all those Hungarians into Swiss franc mortgages? http://www.businessweek.com/news/201...headwinds.html
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Old 29.07.2010, 07:31
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Re: Morgage Terms

»Ten years is a long time... there is so much doubt in the markets over USD, GBP and EUR that serious money is going into SGD and CHF, ... «

I agree that an increase in interest rates does not seem feasible or likely at the moment, but beliefs and ideologies may yet, in the medium term, triumph over reality in the EU and the US and curtail the flight to apparently safe havens. It looks like it well take a few years though. Ten years, as you say, is quite a long time and this reminds me to at least try to leverage a cost-effective exit agreement before proceeding. Even if i don´t succeed I think 2.8% seems on the whole almost resonable for 10 years of stability.

»Let it be said, though, that I don't give out investment advice for free or otherwise. The foregoing is for amusement purposes only.«

Thank you - that is, if anything, reassuring to know. The advice I´ve received in return for consideration in the past has usually been less intelligent, albeit on the whole perhaps just a bit more amusing

»BTW, as for Raiffeisen, isn't that the bank that got all those Hungarians into Swiss franc mortgages? http://www.businessweek.com/news/201...headwinds.html«

Did not know about that. I have seen something somewhere about a similar problem in Poland, but I don`t think the RB is involved. It would not surprise me, though. They have recommended equities in the past which, happily, I declined to pursue. Our experience with banks has generally been almost farcical, most dramatically when our star investment manager at a Cantonal bank was arrested. He had been on honeymoon in NY (after marrying an adult enternainment artiste) and sadly was unable to obtain a flight back to CH in the immediate wake of 9/11. The trail of his embezzlement and mis-management only became apparent to the directors of the bank because of 9/11, since it delayed his return and he was not back in time to cover his tracks. These antonal bank directors had, however, never previously questioned how he had managed to indulge simultaneouly in the offerings of Bentley, Porsche and Ferrari. They later continued to affectionately describe him as a "Paradiesvogel".

Our subsequent experience with a non-Swiss bank within Swtzerland was almost as bad, and after observing the gOsple of the then highly-regarded UBS in a social setting several years ago, we were quickly put off for life. We have stayed with the Raiffeisen for everyday banking not because they are particularly competent, but precisely because they seem to employ fewer brilliant whizzkidds and **appear** to be honest and trustworthy.
At least to the extent that anything that is subject to Swiss law can be regarded as trustworhy. But that is just my opinion - and of course I know that similar things happen elsewhere.

F

PS
I wuld like apologize for posting the above twice. The previous post had too many quoting and fomatting mistakes. My hidden agenda is, of course, to post ten (?) messages so that I will eventually be able to correct some of the terrible typos and spelling mistakes I´ve made in my postings. thank you for your patience.
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Old 29.07.2010, 10:35
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Re: Morgage Terms

We've currently got everything on Libor and are working on the basis of watching the rates with eagle eyes and fixing a proportion the moment rates start to move upwards. The all-Libor hurt like hell for the last half of 2008, but apart from that we've been quids in
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