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  #21  
Old 06.09.2011, 15:51
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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dodgy, i get part of what you are saying here....so you fixed a larger chunk for a 1/4% discount? I'm thinking of going libor for 1/3 of the total and rest will be between special programs offered by ZKB (Umwelt, Starthypothek and Fixed)...
I would think that would be for 1/4% more for the fixed chunk.
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  #22  
Old 06.09.2011, 16:01
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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I would think that would be for 1/4% more for the fixed chunk.

a yes...true...for just 1/4 makes sense. Key is in establishing what the fixed rate should be...if they quote you 2.5 today how do you actually determine what you can bring them down to without being ridiculous
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  #23  
Old 06.09.2011, 16:05
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

The banks take the underlying libor curve - and then price their fixed from that. If the curve moves upwards more quickly you win - if it doesn't you lose.

Unfortunately most banks don't supply the curves - you'll need to get someone inside to provide you with the data.
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  #24  
Old 06.09.2011, 16:13
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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The banks take the underlying libor curve - and then price their fixed from that. If the curve moves upwards more quickly you win - if it doesn't you lose.

Unfortunately most banks don't supply the curves - you'll need to get someone inside to provide you with the data.

ZKB did show me the libor curve...were pretty open about their margin as well. Will do some homework and see what can be done. Place is not ready till next year so there will be partial payment 4x before place is handed over. They stated that until the place is ready the payments will be released to the builder using the fixed hypothek and I guess later one can get all this restructured.
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  #25  
Old 06.09.2011, 16:32
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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speaking of margins and the interest rates....has anyone been able to reduce the quoted interest rate (except maybe for Libor)? Looking at dividing my future mortgage between Libor, Umwelt (ZKB product) and Fixed and perhaps Starter (ZKB product). I do not want to fix for too long max 7 years at the present moment. The way I look at what the bank actually makes is the libor + ,7 or .8 rest (outside Libor) is pure profit. Was anyone able to negotiate the rates at all? was told this is normal practice and expected just not sure what you can actually get. Are we talking .2 - .5 or full point?
Heard of stuff around 1st payment being covered by the bank specials etc..

Any tips would be welcome. Meeting the bank next week to get final financing commitment.
There's a long thread in German where people are discussing the various interest rates they were offered:
http://www.haus-forum.ch/baukosten-f...ypotheken.html

On that forum, you can also find various threads on Libor offers, e.g.
http://www.haus-forum.ch/baukosten-f...-offerten.html
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  #26  
Old 06.09.2011, 16:45
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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I do not want to fix for too long max 7 years at the present moment.
Can I ask you why?
I came to totally different conclusion: I will try to benefit from these extremely low rates by having a fixed mortgage for as long as I can. I was thinking 10 years but I'm seriously considering 15 years. At 2%, I don't think they're ever going to be lower than that.
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Old 06.09.2011, 16:45
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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There's a long thread in German where people are discussing the various interest rates they were offered:
http://www.haus-forum.ch/baukosten-f...ypotheken.html

On that forum, you can also find various threads on Libor offers, e.g.
http://www.haus-forum.ch/baukosten-f...-offerten.html

this is good stuff! many thanks!!
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  #28  
Old 06.09.2011, 16:56
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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Can I ask you why?
I came to totally different conclusion: I will try to benefit from these extremely low rates by having a fixed mortgage for as long as I can. I was thinking 10 years but I'm seriously considering 15 years. At 2%, I don't think they're ever going to be lower than that.

well you have a point of course..I'm not at a stage of commiting to any program yet but with ZKB programs which I'm looking at are attractive but can be for max 5-7 years like their Umweltdarlehen which is at 1.489% for 7 years or Starthypothek for 5 years at 1.65% why not take advantage of those along with libor (which you can get out of at almost anytime).
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  #29  
Old 08.09.2011, 17:17
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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Can I ask you why?
I came to totally different conclusion: I will try to benefit from these extremely low rates by having a fixed mortgage for as long as I can. I was thinking 10 years but I'm seriously considering 15 years. At 2%, I don't think they're ever going to be lower than that.
You have to balance a couple of issues including but not limited to the following:

1. Will you need a variable element in case you want to downsize later or pay off early? (especially if inflation takes off given recent SNB activity!)
2. Fixing ALL for a while means the penalties to get out for another product will be high for premature exit
3. If you need to sell, what options does your product have? (some need 6 months notice otherwise interest payable)
4. If 2% starts to look expensive, what options do you wish you had kept?
(I met my bank this morning to review my 4 yr old mortgage, with fix rate maturing in a year. 3.8% looks expensive now....luckily 40% is at less than 2%, getting out early can cost a year's interest, unless you can get a renegotiation).
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  #30  
Old 30.03.2012, 00:26
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

Update just renewed my mortgage with a reduction in interest of approx 60-65% for the next three years.

I didn't want to go for too long, as the issue with the nice 10-15 year offers at the moment is that although you can get good deals around 2% fixed that costs you in terms of:

a) you're effectively signing a contract to pay the x000 a year for the 10-15 regardless of changes in your life (it's not insured in any way for you)
b) if your life changes the penalty can be huge

....unless you're happy being bonded........
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  #31  
Old 30.03.2012, 08:10
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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Update just renewed my mortgage with a reduction in interest of approx 60-65% for the next three years.

I didn't want to go for too long, as the issue with the nice 10-15 year offers at the moment is that although you can get good deals around 2% fixed that costs you in terms of:

a) you're effectively signing a contract to pay the x000 a year for the 10-15 regardless of changes in your life (it's not insured in any way for you)
b) if your life changes the penalty can be huge

....unless you're happy being bonded........
If rates go up, I doubt there will be any penalties, they will pay you to get out of the deal!
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  #32  
Old 15.05.2012, 21:24
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

Reviving this thread as we're in the process of negotiating our mortgage and, being totally innumerate and a financial numpty, I'm having a hard time wrapping my head around the indirect vs direct amortization options.

Could somebody please explain in simple terms what impact (if any) using indirect repayments has on the amount of 3a pillar income we will receive at retirement?
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  #33  
Old 20.09.2013, 09:42
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

Reviving an old thread, but still relevant nowadays!

So my colleagues are all buying houses and are discussing heavily on that topic Direct Repayment vs 3a Pillar for repaying the mortgage.
I'm always interested as it could be useful information...

1) So apparently there are tax incentives of doing the indirect repayment. I guess it's all a set of variables so maybe in some case scenario, the direct repayment can be a less expansive choice than indirect repayment!? One of my colleague claims so, but all other ones said the indirect is better.

2) It seems possible to combine the 2 (indirect + direct), but what is the point?
Does the debt you have is permanently reduced, or it is at the end of the fixed period?
Let's assume the mortgage is 400 000chf. One choose a 10 year old rate at 2.5%. The interest own are 10 000chf/year.
The direct repayment, set at 1%, represents 4000CHf.
Does it means that after 1 year the interest will be based on 396000chf?
Or is it only changing at the end of the 10 year period?
Or it is progressively (ex: 4000/12 months= 333.333 per month) meaning the 2.5% interest will be based on 300K the first month, then 299 666.6 the 2nd month, etc...?

3) What is the point to repay the mortgage faster, especially if "owning the house" brings a big financial tax burden once repayed?
All my colleagues are never intending to "own" their place. I know it's the Swiss way and all that, but also they all have house worth millions and are mainly saying "we pay less than renting".
So if the scenario is different, like the mortgage is "only" 400K CHF, and the debt reduced faster with both indirect + direct repayment, what for?

My colleague said it's useless because he never intends to repay the mortgage quickly- But I think it looks better to reduce the mortgage with direct + indirect (small direct repayment every months, like 200chf max) so it reduces the cost...

4) Now, based on the interest + direct repayment + indirect repayment + bills + fire insurance + etc... it all looks really expensive and I am still seeing owning property as a very expensive way of renting!
So yes maybe it's impossible now to find low rents, so maybe it's more or less the same investment, price per month + many risks for the home owner.

Surely there is something I am missing and entirely "owning" the house is not such a financial burden?

5) My colleague negotiated a deal with a bank to get better rate on a fixed 10 years period. He was told that if he put 30% of the house value, he will not have to contract a 2nd mortgage with higher rate. Again, why? especially if the house is never to be fully repayed (at least not with direct + indirect repayments; but from selling the house?). What's the point? Is that not going "closer" to fully owning the house, and therefore, getting closer to the financial burden?

6) out of topic, but I was told that the notary fees on buying a house are 100% for the buyer, and when selling the house, they are split 50%-50% for the buyer and seller- It makes no sense.
In fact I looked at it and there is some notary calculation fee website>
http://www.notaires.ch/index.php?opt...rmname=combien

For example, for a 500K property the total cost is 17 271 CHF.
1455chf for doing the document...
15000chf for "mutation rights or transfer duty"?

So is that the total cost that is spread or only the 1455chf thing?






Thanks!
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  #34  
Old 21.09.2013, 15:13
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

It's much simpler if you think of it as follows:
I have two choices either rent or own. Once I've decided one or the other, there are variants I need to take into account.
If I rent prices usually go up and I'm restricted on renovations, but I can leave after the notice period. I need to have a hefty deposit/insurance for security.
If I own/buy I have the option of fixed financing for 10years when everyone else's rent goes up. I do have increased common costs per year as the building ages.
For an owner/buyer there's some additional tax considerations in terms of the eigenmietwert and the grundstückgewinnsteuer if I sell especially in the first 20 years. However there are also tax breaks for renovations and interest payments.

So, which risk premium do you prefer from the available options?

On direct/indirect amortization it's a question of do I think I can make more money investing my pillar 3a or by repaying interest. Personally my 3a gets 6% tax free/deferred whereas my mortgage interest is 1.31%.

On my UK mortgage however I am paying that back like the bejayzuz as there's no comparable cost benefit in the UK ISA market.
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  #35  
Old 23.09.2013, 15:09
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

Thanks, yes it does looks simpler-
But i'm curious and I like the details, especially when they imply a few thousands CHFs for a tiny choice!

For the direct/indirect amortization it's a question of "do I think I can make more money investing my pillar 3a or by repaying interest".

I'm not sure I understood here-
But if you "reduce your interest rate" by repaying more (adding direct repayment to the advantages of indirect repayment), is that not better?

Like I said if the monthly direct repayment is small, it won't make a big difference quickly, but after a few years you have reduced the debt, and should pay less interest, on a monthly basis...

Without making proper calculations, it looks like a better choice- But my colleague is only considering Indirect repayment. The others are also saying the same!

So I think the other "consequence" that they fear is "owning the place" and clearing the debt- It will costs as there are no more deduction of the debt to the income tax. But surely it won't amount to the same cost as "paying back the interest" every months!!?

In fact on a 500K mortgage, at 2.5%, it does represents 1041CHF/months!!
So if someone manage to repay the entire debt (over a long period), will it really cost more than 1041chf/months to own the place!!!??
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  #36  
Old 23.09.2013, 15:55
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

Property purchase has always been considered a LONG TERM hedge against inflation. Theoretically over the long term (30 years) your earnings increase and therefore the relative cost of providing a roof over your head decreases. In renting this is not always the case.

At the point you retire, in Switzerland, you HAVE to own a minimum of 66.7% of the value of the property.

Due to the tax setup in Switzerland there is little benefit in paying off the full amount of the house. The Swiss system taxes the effective benefit of owning a property, this is countered (in the tax return) by a deduction to run/maintain the property - in the form of either servicing of debt and/or general maintenance.

On the Asset/Debt side - the asset is values every 10-15 years by the community - and is often much below the actual market value - therefore the debt element may exceed the value of the property.

The end result is that owning a 1m property with a 60% mortgage + 1m in cash is more advantageous than owning the same property (outright) and 400k in cash.
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  #37  
Old 23.09.2013, 16:11
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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On the Asset/Debt side - the asset is values every 10-15 years by the community - and is often much below the actual market value - therefore the debt element may exceed the value of the property.
Sounds like many home owners are technically insolvent in that case
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Old 23.09.2013, 16:43
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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Sounds like many home owners are technically insolvent in that case
It is another Swiss peculiarity. The community would benefit from higher values as they would then receive tax on assets!!

It is quite scary the first year you buy a property - when the deposit chews through your savings and you end up with near ZERO assets
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  #39  
Old 23.09.2013, 19:32
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

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It is another Swiss peculiarity. The community would benefit from higher values as they would then receive tax on assets!!

It is quite scary the first year you buy a property - when the deposit chews through your savings and you end up with near ZERO assets
It's actually probably overvalued to market at 31st December If you decided at breakfast time you wanted cash that day I doubt you would get any more,
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Old 19.05.2015, 12:37
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Re: Direct Repayment vs 3a Pillar - let's write down some figures

Dear all
Bumping up this old thread. I see that between the two choices below its beneficial to indirectly amortise the mortgage.
However, what about a third situation where you pay Pillar 3 anyway and in addition do direct amortisation. Isn't that the most favourable ?

Thanks
Tintin

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I realized I did a small mistake in my previous calculation, a I didn't calculate 3a Pillar interests properly.

Moreover, I called the bank to clarify how the indirect repayment works for high percentages, and they confirmed me that if the repayment amount is more than the Pillar cap, then the excess will go as direct repayment.

This of course doesn't make any difference if the repayment is 1%, since it's still below the Pillar cap (for 2 earners). However I'm surprised to notice that the 3a Pillar still wins.

This time I will post the full tables. Apologies for the poor format, I couldn't find any suitable way to display them.

Senario 1: direct repayment

Year.....Interests.........Left to pay........Tax saved interests
1st......CHF 30,000.00.....CHF 990,000.00.....CHF 6,000.00
2nd......CHF 29,700.00.....CHF 980,000.00.....CHF 5,940.00
3rd......CHF 29,400.00.....CHF 970,000.00.....CHF 5,880.00
4th......CHF 29,100.00.....CHF 960,000.00.....CHF 5,820.00
5th......CHF 28,800.00.....CHF 950,000.00.....CHF 5,760.00
6th......CHF 28,500.00.....CHF 940,000.00.....CHF 5,700.00
7th......CHF 28,200.00.....CHF 930,000.00.....CHF 5,640.00
8th......CHF 27,900.00.....CHF 920,000.00.....CHF 5,580.00
9th......CHF 27,600.00.....CHF 910,000.00.....CHF 5,520.00
10th.....CHF 27,300.00.....CHF 900,000.00.....CHF 5,460.00
TOTAL:...CHF 286,500.00.......................CHF 57,300.00


Scenario 2: 3a Pillar

Year .. Interests ...... Left to pay ........3a pillar ...... TAX saved pillar . Tax saved interests .. 3a Pillar Interests .. 3a Pillar total
1st ... CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 175.00 ........... CHF 10,175.00
2nd ... CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 178.06 ........... CHF 20,353.06
3rd ... CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 356.18 ........... CHF 30,709.24
4th ... CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 537.41 ........... CHF 41,246.65
5th ... CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 721.82 ........... CHF 51,968.47
6th ... CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 909.45 ........... CHF 62,877.92
7th ... CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 1,100.36 ......... CHF 73,978.28
8th ... CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 1,294.62 ......... CHF 85,272.90
9th ... CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 1,492.28 ......... CHF 96,765.18
10th .. CHF 30,000.00 .. CHF 1,000,000.00 .. CHF 10,000.00 .. CHF 2,000.00 ..... CHF 6,000.00 ......... CHF 1,693.39 ......... CHF 108,458.57
TOTAL: .CHF 300,000.00 ..................... CHF 100,000.00.. CHF 20,000.00 .... CHF 60,000.00 ........ CHF 8,458.57


Data table per repayment

Repayment .. Direct ........... Indirect
1% ......... CHF 229,200.00 ... CHF 211,541.43
2%
......... CHF 218,400.00 ... CHF 194,914.11
3%
......... CHF 207,600.00 ... CHF 184,114.11
4%
......... CHF 196,800.00 ... CHF 173,314.11
5%
......... CHF 186,000.00 ... CHF 162,514.11
6%
......... CHF 175,200.00 ... CHF 151,714.11
7%
......... CHF 164,400.00 ... CHF 140,914.11
8%
......... CHF 153,600.00 ... CHF 130,114.11
9%
......... CHF 142,800.00 ... CHF 119,314.11
10% ........ CHF 132,000.00
... CHF 108,514.11

So the 3a Pillar is always convenient if the taxes paid when using the amount are below the fork between the two values. For a 2% repayment, the fork is around CHF 24,000 which is for sure more than any taxes you could possibly pay.
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