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Old 20.06.2013, 23:26
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Mortgage for house under construction

Hello - We had a look at the plan of a small apartment that may be interesting for us to buy. The construction will start in a few months and the completion is in 2015. 80% of the funds have to be released at the time of completion. I am wondering if I can take the 80% mortgage now at current rates for funds that have to be release in 2015 ?
Or will I have to pay the 80% mortgage at interest rates of 2015 which are completely unknown to me now ?

This may be a big factor as part of the reason we got interested in purchasing an apartment is the current low rate of interest.

Many thanks !
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Old 21.06.2013, 06:36
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Re: Mortgage for house under construction

We are in the middle of building a house right now. In our case, they 'blocked' the entire amount of our mortgage in a works account, and we draw against that as we pay our suppliers. I imagine they could do something like this for you as well.

The upside is that you lock in today's interest rates. The downside is that you will begin making interest payments right away. You make interest payments on the entire amount that you will eventually borrow (eg, the entire amount that's been 'blocked' in the works account), not just the part you've drawn against.
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Old 21.06.2013, 07:20
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Re: Mortgage for house under construction

We found our lenders would not start the mortgage until the house was completed. Thus we took a building loan.

Next time we moved here, we took a bridging loan, which was actually another mortgage, but one that could be cancelled when the house was finished.

But agreed it would be great to lock into today's low interest rates now.

Your lender will have the answers...
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Old 21.06.2013, 07:20
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Re: Mortgage for house under construction

We are doing the same thing as village idiot. The benefit for us was despite paying interest immediately on the entire sum borrowed upfront, it is still a better deal in the long run than going the more traditional route of a baucredit (building mortgage) which carry higher interest rates during the build period.

But if ypu do not have staged payments (ie releasing funds at set points during the build period) then I am not sure that it would be beneficial (or indeed doable),
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Old 21.06.2013, 10:25
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Re: Mortgage for house under construction

Thanks guys. Yes, we do not have staged payment. 80% at completion which makes this a bit tricky.
I will see what the lenders have to say !
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Old 21.06.2013, 10:58
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Re: Mortgage for house under construction

From what I know from friends who have built, you get a special builders loan or mortgage until it is finished, then it is converted or rolled into a proper mortgage thereafter. Your bank should be well versed in such matters.
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Old 21.06.2013, 11:03
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Re: Mortgage for house under construction

I am sure all these answers are really helpful if the OP was building their own property - HOWEVER as it seems unlikely they are building their own FLAT I suspect the mortgage will only be confirmed/released on completion.

And - lets say the apartment is 1,000k CHF - deposit 200k, mortgage 800k

800k @ 1% = 8k (per year)
2 years = 16k in interest to lock yourself into a rate that may or may not rise substantially in that period.

I wouldn't want to lock myself in to such a loan until I absolutely needed the money.
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Old 21.06.2013, 13:00
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Re: Mortgage for house under construction

yes, you can often do this. just speak to the bank and see if you can book the rate in advance. depending on which bank, you might only be able to book a year in advance.
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Old 30.01.2014, 10:46
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Re: Mortgage for house under construction

The other things which is very confusing is that in the Kaufsvertrag, there is a clause that requires us to provide a bank guarantee for the 80% of the value, which is to be paid after completion. Since this loan kicks off more than a year down the line, I am not sure which bank should I go with. It depends on who provides me an attractive rate at that point of time. BUT, this guarantee needs to be produced NOW. Can I change my bank at a later point ? Or do I HAVE to go with the bank that is mentioned on the Bank guarantee Clause (Zahlungsverpflichtung)

Thanks again !
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Old 30.01.2014, 11:06
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Re: Mortgage for house under construction

you can forward fix you mortgage to start at a set date in the future. this sets in the interest rate as agreed with the bank now and will allow the bank to provide the guarantee that fund wills be available.

You will not pay interest until the funds are released on completion, however you will be locked into the mortgage and so need to shop around now before you chose lenders. If you agree a 5 year fixed mortgage to start in 1 years time you will effectively be given the rate for a 6 year fix.

The 20% deposit you will have to pay yourself.

This is our experience from a 2012 purchase with a 2013 completion - on the same payment schedule as your potential purchase
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Old 30.01.2014, 12:23
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Re: Mortgage for house under construction

But, one of the banks we spoke to said that we could choose the structure of the loan at a later point in time. However, in that case we will have to go with the "then-existing" rates.
In this case of forward fixing, I understand that you have to choose the structure.
My question is if we keep it open, can we later choose to switch to another bank who offers more interesting rates a year down the line ? Or do we have to stick with the bank that has signed on this "Bank guarantee" while notarising.
Thanks
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Old 30.01.2014, 16:43
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Re: Mortgage for house under construction

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But, one of the banks we spoke to said that we could choose the structure of the loan at a later point in time. However, in that case we will have to go with the "then-existing" rates.
In this case of forward fixing, I understand that you have to choose the structure.
My question is if we keep it open, can we later choose to switch to another bank who offers more interesting rates a year down the line ? Or do we have to stick with the bank that has signed on this "Bank guarantee" while notarising.
Thanks
Provided you don't sign anything with the bank, you can change as you wish. If you have a signed guarantee, then not without paying a substantial cancellation fee - which could be as much as 5 years interest payments on a 5 year fix loan...
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