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Old 22.06.2011, 19:43
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Re: Urgent - Loan to buy apartment - are these good rates?

Hi,
I would recommend to take the fixed over 5 years -10 years if you buying it alone without any co signers (no divorce etc .....)
intrest rates are going to go up alot in the next few months.(few decimals on the percentage) (projected by credit suisse.) big penalties if you sell earlier AND the money you might have used from 2nd or 3rd pillar needs to be paid off straight away.

the 1 percent is what the app is going to cost you per year. concierge, fonds de renovation etc etc. (did you check the fonds de renovation btw? so there is no expected big projects coming up? ) all these are things to take into consideration.

your first loan you will likely never pay off. The second one has to be paid off by the time you are 60.

Also did you take into consideration the 5% cost notary etc etc etc.

if you got more questions let me know and I will be glad to help
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  #22  
Old 22.06.2011, 23:16
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Re: Urgent - Loan to buy apartment - are these good rates?

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Hi,
I would recommend to take the fixed over 5 years -10 years if you buying it alone without any co signers (no divorce etc .....)
intrest rates are going to go up alot in the next few months.(few decimals on the percentage) (projected by credit suisse.) big penalties if you sell earlier AND the money you might have used from 2nd or 3rd pillar needs to be paid off straight away.
UBS, Credit Suisse et al have been "predicting" that rates will go up for the last year at least, and so far no signs. The Swiss central bank is effectively unable to move rates upwards (at least in any significant way) by the strength of the Swiss Franc vs pretty much every other major currency - any increase in rates would only exacerbate the problems caused by the strong CHF. For this reason I have been on a 3M LIBOR for my entire mortgage since late 2009, and the way the EUR, USD and GBP have moved since then against CHF have only strengthened my conviction.

The banks will of course be encouraging people to fix - they take a nice profit from the fixed rates, and that profit is even greater if rates stay low for a significant time...

As I said before, fixing is like taking insurance - if you couldn't afford it if rates went up to 3% or 4% then it's worth fixing, but my personal opinion is that it is better to stay variable for now. And given the way the 5+ year fixed rates have fallen recently there are a lot of people who are thinking the same thing...
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  #23  
Old 22.06.2011, 23:53
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Re: Urgent - Loan to buy apartment - are these good rates?

The advantage of fixed rates is that you know what the payment will be. Various persons in the US were surprised to realize just how high their variable rate loan payments could go when rates went up.

On the other hand, a fixed rate loan is in some sense an average of what the market thinks rates will be over the given time period, plus a premium for locking in a rate. So they are more expensive on average, but whether an individual loan is more expensive depends on whether the rates go up enough.

In any case, two questions to ask are 1) will you be able to afford variable rate payments in a "worst case" rates go up scenario and 2) do you have a better sense than the market for when interest rates will rise.
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Old 23.06.2011, 00:02
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Re: Urgent - Loan to buy apartment - are these good rates?

The bank will not give you the loan unless you can assure you can pay up to 5% interest with what you currently earn, even if they are giving it at 1.7% The reason the rates are not going up at the moment is done on purpose; because of the Euro....(cheap imports) if the Euro gets better the interest rates will def go up. I had a 3 hour discussion in one of my classes with the vice president of one of the cantons of CS today for a real estate class. That is what she was telling us. and she has no reason to tell us BS because we will be bringing her revenue.
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Old 23.06.2011, 09:47
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Re: Urgent - Loan to buy apartment - are these good rates?

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The bank will not give you the loan unless you can assure you can pay up to 5% interest with what you currently earn, even if they are giving it at 1.7% The reason the rates are not going up at the moment is done on purpose; because of the Euro....(cheap imports) if the Euro gets better the interest rates will def go up. I had a 3 hour discussion in one of my classes with the vice president of one of the cantons of CS today for a real estate class. That is what she was telling us. and she has no reason to tell us BS because we will be bringing her revenue.
Of course it is done on purpose. The Swiss central bank sets interest rates...

The whole point is that the CHF has been increasing against the EUR (as well as most other major currencies) for quite some time now (see graph here) and the likelihood of this trend reversing any time soon is currently looking pretty low (see Greece + Ireland to name but two of the most visible problems for the Euro).

Of course your lecturer is right that once the Euro decline reverses then there will be increased pressure to raise rates in Switzerland, but the question is when will this actually happen. IMHO not any time soon, and as I stated previously the market agrees with me.
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Old 23.06.2011, 10:56
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Re: Urgent - Loan to buy apartment - are these good rates?

Just one observation, and it's not intended to advise one way or the other. But it worries me sometimes when I hear people say they will take the low LIBOR rate, then fix it when rates start to rise. Of course that is an option, but please consider:

a) many banks (not all) will charge a fee which can be considerable and opaque (ie you only find out the cost at the time) to exit the current arrangements

b) by the time the average person notices the rate rise, the long term fixed rates will probably have 'gapped up' (ie already gone up a large amount) - you are unlikely to be able to choose in future to fix at the sort of rates you see now.
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Old 23.06.2011, 11:57
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Re: Urgent - Loan to buy apartment - are these good rates?

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Just one observation, and it's not intended to advise one way or the other. But it worries me sometimes when I hear people say they will take the low LIBOR rate, then fix it when rates start to rise. Of course that is an option, but please consider:

a) many banks (not all) will charge a fee which can be considerable and opaque (ie you only find out the cost at the time) to exit the current arrangements
In Europe, or at least Switzerland, it seems normal to charge an economic (based on lost profits) penalty for leaving a fixed term loan arrangement. There shouldn't be such a penalty for a LIBOR loan because they can simply issue another LIBOR loan. Whereas they cannot issue a 3% loan in a 2% rate environment. There might still be some penalties, I suppose. Certainly this is something to know before signing a loan contract.

In the US such penalties are not the norm. (I'm trying to remember if it is illegal or simply not accepted by the market). This is part of what makes refinancing common in the US which in turn increases the volatility (well, negative convexity) of US CMOs.

Even in the US though, creating a new loan can cost a few percent in "points", and there can be other origination fees (fresh appraisal, etc). I would expect there to be similar fees lost when restructuring in Switzerland, but I don't know.

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b) by the time the average person notices the rate rise, the long term fixed rates will probably have 'gapped up' (ie already gone up a large amount) - you are unlikely to be able to choose in future to fix at the sort of rates you see now.
Yep! Even neglecting refinancing fees, if the interest rate rising scenario starts tomorrow, you are better off having a fixed term loan today. Also think about how consistently you will check the rates, etc. In some sense you are trying to beat the market when you plan this way. I'm not saying that you cannot, but the fixed term premium is there for a reason.
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Old 23.06.2011, 12:07
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Re: Urgent - Loan to buy apartment - are these good rates?

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Just one observation, and it's not intended to advise one way or the other. But it worries me sometimes when I hear people say they will take the low LIBOR rate, then fix it when rates start to rise. Of course that is an option, but please consider:

a) many banks (not all) will charge a fee which can be considerable and opaque (ie you only find out the cost at the time) to exit the current arrangements
Good point - you should always clarify these fees before signing up, although to switch from a LIBOR to a fixed term loan shouldn't cost much unless they are really ripping you off.

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b) by the time the average person notices the rate rise, the long term fixed rates will probably have 'gapped up' (ie already gone up a large amount) - you are unlikely to be able to choose in future to fix at the sort of rates you see now.
True. Once an environment of increasing rates has been established through an initial one or two rises, it is likely that long-term fixed rates will probably move up to compensate not only those initial increases but also anticipated future rises. As I have stated repeatedly, what is best for you depends on your own personal situation and what you think the market will do. For me, I would rather stay on LIBOR 3M for another year or two and save the 1.X% premium vs a 5+ year fix. I accept that I will probably pay more later as I won't be able to fix at the current rates, but overall I still think I will be better off. But you have to make your own decision.
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