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Old 19.06.2012, 14:22
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Re: Key points of a mortgage contract

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As I was walking around the Art yesterday, I noticed that UBS is the main sponsor of this event. And every time I watch a Formula 1 race, I'm bombarded with UBS advertising. It boggles my mind to think that this company had to be bailed out by the Swiss government just 4 years ago, and now they are able to spend billions on sponsoring again.

Personally, I would prefer to do business with a bank that has a lower profile and lower overhead - one that is more interested in keeping me as a customer instead of giving me the feeling that I'm an annoyance (because I have a blue passport instead of a red one.)
I have similar thoughts.

My partner owns a property in Germany. It is leasehold and some time ago the owner of the land offered us the possibility to buy it, converting the property to freehold.

I organised a meeting with UBS to see if they could get us a mortgage. I'm not a UBS customer so they know nothing about me. They don't know my income or that of my partner and they don't know the property and they don't know the price the owner was asking for it. So basically I wasn't expecting a verdict until we'd put all the facts on the table and gone over the details. So I was quite shocked that the moment we told the rep that we wanted to buy the land under our leasehold and wanted to see what a mortagge would cost to decide whether or not that was a good idea, he replied, "oh yes, that definitely is a good idea. You should definitely buy it". And he wasn't joking, he said it in a very serious and bankish way. It sort of made it difficult for me to take him seriously after that.
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  #22  
Old 19.06.2012, 14:27
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Re: Key points of a mortgage contract

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"oh yes, that definitely is a good idea. You should definitely buy it". And he wasn't joking, he said it in a very serious and bankish way. It sort of made it difficult for me to take him seriously after that.
But as a concept it IS a good idea. He wasn't give you a mortgage there and then was he?
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  #23  
Old 19.06.2012, 14:31
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Re: Key points of a mortgage contract

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My partner owns a property in Germany. It is leasehold and some time ago the owner of the land offered us the possibility to buy it, converting the property to freehold.

I organised a meeting with UBS to see if they could get us a mortgage. I'm not a UBS customer so they know nothing about me. They don't know my income or that of my partner and they don't know the property and they don't know the price the owner was asking for it. So basically I wasn't expecting a verdict until we'd put all the facts on the table and gone over the details. So I was quite shocked that the moment we told the rep that we wanted to buy the land under our leasehold and wanted to see what a mortagge would cost to decide whether or not that was a good idea, he replied, "oh yes, that definitely is a good idea. You should definitely buy it". And he wasn't joking, he said it in a very serious and bankish way. It sort of made it difficult for me to take him seriously after that.
If it really is a "leasehold" ("Erbbaurecht", as opposed to something you rent aka "Miete"), then buying the freehold is usually a very good idea indeed. Why? because it is a lot easier to sell a freehold then a leasehold in Germany, the latter usually requiring the authorisation of the freeholder. Also, leases are quite rare in Germany, people want to buy freehold and leaseholds are sold at a discount.
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  #24  
Old 19.06.2012, 14:40
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Re: Key points of a mortgage contract

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If it really is a "leasehold" ("Erbbaurecht", as opposed to something you rent aka "Miete"), then buying the freehold is usually a very good idea indeed. Why? because it is a lot easier to sell a freehold then a leasehold in Germany, the latter usually requiring the authorisation of the freeholder. Also, leases are quite rare in Germany, people want to buy freehold and leaseholds are sold at a discount.
Yes, it is "Erbbaurecht". I know that in general it is a good idea to own that sort of thing, but it does depend on details. As it turned out, UBS refused us that mortgage, not because we didn't have the income but because of a first mortgage/second mortgage thing, there already being a mortgage on the property with a different bank that we can't get out of. Of course in view of the rep's initial enthusiasm that was extra bitter. Maybe something like "yes, in general that's a good idea, but let's look at the details first" would have been a more professional way to start the discussion. Anyway, the lease is quite moderate and according to the contract they can't increase it for another 8 years so we can actually save money versus paying a mortgage. Of course we don't know what the land price and exchange rate will do in the meantime but there is a fair chance we could have a large part of the money saved up by then.
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  #25  
Old 19.06.2012, 14:42
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Re: Key points of a mortgage contract

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Of course in view of the rep's initial enthusiasm that was extra bitter. Maybe something like "yes, in general that's a good idea, but let's look at the details first" would have been a more professional way to start the discussion.
Very true!
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  #26  
Old 19.06.2012, 15:02
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Re: Key points of a mortgage contract

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Is this really a rule, or just something that has become true because people jhave repeated it often enough.

A work colleague of mine recently bought a small appartment and claims she didn't have to put in any cash of her own. Of course it could be that she misunderstood or isn't telling me the whole truth, but it could also be that the value of the appartment is quite low and I guess her salary is good so different rules may apply, or maybe they are offsetting the mortgage against other investments she has.
This is possible true, in theory, a bank will lend up to a maximum of 80% of THEIR valuation of the property.
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  #27  
Old 19.06.2012, 15:26
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Re: Key points of a mortgage contract

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This is possible true, in theory, a bank will lend up to a maximum of 80% of THEIR valuation of the property.
I guess bank valuations generally tend to err on the side of safety, so if the bank's valuation were what mattered, people would generally have to contribute more than 20%.
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  #28  
Old 19.06.2012, 15:34
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Re: Key points of a mortgage contract

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Is this really a rule, or just something that has become true because people jhave repeated it often enough.

A work colleague of mine recently bought a small appartment and claims she didn't have to put in any cash of her own. Of course it could be that she misunderstood or isn't telling me the whole truth, but it could also be that the value of the appartment is quite low and I guess her salary is good so different rules may apply, or maybe they are offsetting the mortgage against other investments she has.
I missed this earlier. But as TodayOnly says, you put down 80% of the value the bank puts on the property not the selling price.

If you buy it for less than the value, you put down less. If you buy for more than the value, you put down more of your own cash. One of my work colleagues only put down 17% of her house and another had to put down 25%. (Don't forget closing costs which are not included in the mortgage).

And of course if you have a funky little clause in your contract and the value the bank puts on your property falls then you could be asked to pay up the difference.


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I guess bank valuations generally tend to err on the side of safety, so if the bank's valuation were what mattered, people would generally have to contribute more than 20%.
And they do! If you want to pay over the banks valuation you have to pay the difference yourself. It happens quite a lot, especially in Geneva and apparently it's spreading.

But you can always discuss the valuation with your bank. The valuation on our house was quite a few years old (which actually helped up negotiation down the sales price). In the end the bank agreed that the sale price was also the valuation price. Otherwise we would have had to pay the difference.
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  #29  
Old 20.06.2012, 09:17
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Re: Key points of a mortgage contract

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If you want to pay over the banks valuation you have to pay the difference yourself. It happens quite a lot, especially in Geneva and apparently it's spreading.
Are there really people who are ready to pay above the market value?

That is quite a risk
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  #30  
Old 20.06.2012, 09:29
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Re: Key points of a mortgage contract

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Are there really people who are ready to pay above the market value?

That is quite a risk
I refer you to this thread:

Question about luxury real estate in Geneva or Zurich




Being serious, yes there are people who will pay whatever asked, often with cash.

I suspect the risk being taken has little to do with property values.
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  #31  
Old 20.06.2012, 09:46
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Re: Key points of a mortgage contract

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Are there really people who are ready to pay above the market value?

That is quite a risk
The market value is whatever people are willing to pay.

The banks have calculated a standard rate for properties in different regions of the country. In my town, for example, the "standard rate" for a flat is around 4000 CHF per square meter of living space, plus some allowance for parking spaces and other "non-living" areas (hobby rooms, basement, etc.). Depending upon the location and the demand, obviously this standard rate changes. In someplace like St. Moritz or Davos, the price is going to be more than 10 KCHF per square meter because of high demand and low supply.

The banks will finance 80% of what THEY think the property is worth, based on these standard values. If you are buying a property with a unique selling point (e.g. high-end kitchen installation that adds 50K to the price), they will expect you to come up with the cash for these additional costs.

This is what has bitten a lot of people in the past few years, since the banks don't want more than 80% exposure to any property - with the Euro meltdown in the past years, a lot of EU property has lost 30% of it's value (due simply to the strong Swiss Franc), meaning that many people who financed EU property in CHF now owe the banks more than the property is worth ("upside down"). If the customer defaults, the bank has no way to recoup its investment. That's why my bank forced me to take an additional mortgage on my Swiss property to cover THEIR risk on my German property - and this just a few weeks before they notified me that they were going to terminate my mortgage on the German property anyway.

Any other questions why I view bankers right up there with used-car salesmen?
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  #32  
Old 20.06.2012, 09:59
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Re: Key points of a mortgage contract

We were gobsmacked that our Swiss mortgage agreement didn't mention the duration!

We were mostly concerned about:

1. What was pledged ie. Pillar 3 and / or Pillar 2 (didn't want both)
2. Repayments and method of repayment (indirect vs direct). UBS wanted 1/3 paid back in 11 years, making it around 60k a year in total payments.
3. Interest rates on each mortgage - the one we went for the second mortgage was at the same rate as the first mortgage.
4. Duration of the contract eg. when the agreement term ended and rolled over so that we could re-negotiate or pay it off, and when the libor rolled over so we could change to a fixed rate.

This one was our 5th mortgage agreement and it was the most confusing. No term and no schedule of repayments. We were delighted that when we asked how much we would pay each month they calculated it using simple interest
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  #33  
Old 20.06.2012, 11:25
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Re: Key points of a mortgage contract

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Are there really people who are ready to pay above the market value?

That is quite a risk
No. They are paying the market value which is above the bank's value. It certainly worked out for the last 10 years in Geneva. Who knows how long it will keep going though.
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  #34  
Old 20.06.2012, 14:02
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Re: Key points of a mortgage contract

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It certainly worked out for the last 10 years in Geneva. Who knows how long it will keep going though.
With the newly introduced measures, this is coming to an end... an interesting article:

http://m.letemps.ch/Page/Uuid/78bc86...l%C3%A9manique
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  #35  
Old 20.06.2012, 15:19
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Re: Key points of a mortgage contract

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No. They are paying the market value which is above the bank's value. It certainly worked out for the last 10 years in Geneva. Who knows how long it will keep going though.
Then I should be happy that the bank valued our property (well not yet ours) slightly higher than the asking price, since that means the price is quite attractive.

Or that, or the bank overlooked something that affects the value of the apartment - for which I have to keep an eye on at our next visit...

Last edited by EPMike; 20.06.2012 at 15:47.
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  #36  
Old 20.06.2012, 15:56
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Re: Key points of a mortgage contract

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Then I should be happy that the bank valued our property (well not yet ours) slightly higher than the asking price, since that means the price is quite attractive.

Or that, or the bank overlooked something that affects the value of the apartment - for which I have to keep an eye on at our next visit...
I don't think the banks are totally out of tune with reality. And again, they are open to discussion. Ours was undervalued by the bank. Not a huge amount. But we didn't have the extra in cash. They were happy to adjust the amount up since it had been a while since the previous owners got their mortgage/valuation.

In the "bubble zone" I'm not sure what on earth is going on there! LOL.
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  #37  
Old 21.06.2012, 09:35
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Re: Key points of a mortgage contract

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In the "bubble zone" I'm not sure what on earth is going on there! LOL.
I am afraid no one does!
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  #38  
Old 25.06.2012, 22:07
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Re: Key points of a mortgage contract

In my experience, three things are key:
  • Duration & How to slice your mortgage. I have good experience with the Vermögenszentrum to have a "fresh pair of eyes" look at the mortgage proposal of the banks I received. For example, I learned from them that banks typically make the biggest profit margin on 4,5 and 6 year mortgages, therefore they are typically eager to propose these as a "best option for you".
  • The Rate. Interest rates are easy to compare and "shop around for" - for example this website lists all the current mortgage rates by provider/bank. This is the easy bit.
  • Penalties (in German: Vorfälligkeitsprämie / Vorfälligkeitsentschädigung) can be very high and are hardly negotiable when they occur. This is the part I overlooked the most when I got a mortgage 3 years ago.
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  #39  
Old 25.06.2012, 22:22
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Re: Key points of a mortgage contract

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Mike, we took out our mortgage in 2004; the clause is certainly there. But that was 8 years ago...

Just make sure you read the fine print carefully - and when in doubt, ask your banker for clarification.


ETA:

Essentially, banks were insisting on a 'no risk' situation - that is - the value of your home - i.e., what they can recover should you defalult - should be sufficient to cover their investment. Hence the requirement for a top-up in your cash deposit should the market value of your home fall below the amount that they lent you.


ETA2 -
Another thing to be aware of... depending on your individual situation, it might be to your advantage to put down more than 20%. If you put down a full third, the second mortgage, which carries a higher interest rate, is not needed.
i bought in 2011 and UBS still had this clause. i did consider asking them to remove it, but then i figured that since i was intending to pay down the loan, i didn't care so much - i wish i had at least tried.

the other important thing for me, was flexibility on repayment without penalty.

but just read the T&Cs of your mortgage very carefully and make sure there are no unexpected 'traps'.
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