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Old 31.08.2015, 23:43
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Buying apartment... questions about own capital

Hi. We are considering buying an apartment. Have a couple of questions about own capital. Will have our first appointment with the bank shortly, but still I want to hear from you guys what you think from your experience...

Q1. I know that the minimum own capital is 20% of the sale value of the apartment. We have in cash about 40%. In this case, is it better (in terms of tax...interest rate...) to just invest only the minimum 20%, or to invest more? We asked the "promoteur immobilier" about it, and she seems to say that if she were me she would only invest 20%, but she also said better to check with the bank with different offers.

Q2. I also have some money in 3rd pillar. I know that buying apartment is one of the few reasons for which I can cash my 3rd pillar out. In this case, is it interesting to cash it out to top on the 40% (so to make a even larger initial investiment on the apartment)?

Q3. The "promoteur" told us that they work with two banks and will arrange for us an appointment with each of them for the mortgage. Does this mean that we can only choose from these two banks? Or we can also make it with other banks that we contact ourselves?
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Old 01.09.2015, 00:25
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Re: Buying apartment... questions about own capital

1. As always, the question is, can you do better investing your money elsewhere? Having a larger deposit means that essentially you would 'earn' the home loan rate (say, average 1.3%) on your spare cash -- but that doesn't take into account the tax-deductibility of interest payments, meaning that your effective 'earning rate' would be lower than the home loan rate. If you can achieve safe (ish) returns of >1.1% p.a. or so, then don't put down a large deposit.

2. No. Keep your Pillar 3a. Tax issues, etc.

3. You can go to any bank, or life insurance company, for that matter. Shop around, use a broker, check comparis.ch...

By the way, you don't necessarily need 20% deposit. Some lenders (not 'high street' banks) will lend up to 100%. I was offered this but refused it. Beats me how they get around the FINMA rules, but the deals are out there!
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Old 01.09.2015, 01:25
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Re: Buying apartment... questions about own capital

Ask the bank how they would model your tax situation.
Keeping in mind the fact that bank earns the most if you take an 80% loan....

I see that VZ has branches all over Switzerland
https://www.vermoegenszentrum.ch/kontakt/standorte.html

Maybe get in concat with them. AFAIK, they're as neutral as a source of information as you can get here - but will charge for the advice they give.
Never been there, but I guess I'd pay them a visit before buying property.
Feedback on this forum about them is relatively positive, from what I can remember.
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Old 01.09.2015, 07:46
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Re: Buying apartment... questions about own capital

VZ are indeed independent and give good advice for investing -- however, their fees are high (and they have some hidden fees) and they have a home lending service so do not offer impartial advice on mortgages. They're the ones who offered me the 100% mortgage, by the way, but the rates weren't the best. (Even at 65%, their rates weren't great.)

Last edited by 22 yards; 01.09.2015 at 08:02.
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Old 01.09.2015, 08:28
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Re: Buying apartment... questions about own capital

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Q1. I know that the minimum own capital is 20% of the sale value of the apartment. We have in cash about 40%. In this case, is it better (in terms of tax...interest rate...) to just invest only the minimum 20%, or to invest more? We asked the "promoteur immobilier" about it, and she seems to say that if she were me she would only invest 20%, but she also said better to check with the bank with different offers.
I'm keeping cash on the side, but intend to keep it liquid in case I want to repay early (sudden jump in interest rates etc.).

Also, most institution will require at least 20% cash and at the same time offer 1st and 2nd mortgage. The 1st covers 65% of the house/appt value, and the 2nd covers 15% which you will have to amortize over the next 15 years. Sometimes, the 2nd mortgage is much more expensive than the first mortgage (happens especially with insurance companies).

Those who ask for no cash will usually require other types of collateral (pledging of 2nd Pillar, 3rd Pillar or buying some sort of insurance).

If you put down 35%, you will not need a second mortgage, no need to amortize and get a really cheap long-term mortgage. I would definitely do this if I had the cash.
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Old 01.09.2015, 08:50
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Re: Buying apartment... questions about own capital

The 20% own capital does not need to be entirely in cash, part of it can also be transferred from a pension fund. The minimum amount that can be withdrawn from a fund is Fr.20'000.--. There is also a limit to how often you can make a withdrawal.

Example: Home cost: Fr.200'000.-- paid from:
80% Mortgage from bank: Fr.160'000.--.
10% Own capital cash: Fr.20'000.--.
10% Pension fund transfer: Fr.20'000.--.

Meaning you don't always need the full 20% in cash in advance! I personally had it and so paid the 20% in cash and so didn't dip into my pension fund, a wise move in my case, since I now receive payments from it, but I know people do do this as not everyone can muster the 20% from what they earn.
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Old 01.09.2015, 08:53
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Re: Buying apartment... questions about own capital

Hi Robbie,

I have sent you a PM.

Regards,
Merry
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Old 01.09.2015, 08:56
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Re: Buying apartment... questions about own capital

So much depends on your individual situation and goals.

We chose to put down enough to eliminate the expensive second hypothek, and by doing so were then offered an even better rate.

As US citizens in Steuerparadis SZ, though, homeownership as a (Swiss) tax saving strategy is pretty much irrelevant, what we save on Swiss taxes ends up in Uncle Sam's pocket. And (again, as US citizens) we didn't have many attractive alternative investment options in Switzerland. So for us it was simply a rent vs mortgage calculation, reducing the mortgage as far as possible made the most sense for us.

But you might have very different goals, requiring different strategies.

It should be remembered that if you take out a fixed mortgage you will (generally) have to pay the full interest for that term, even if you sell the house or pay off that portion early. So if you are not here for the long haul, factor this into your calculations.
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Old 03.09.2015, 21:06
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Re: Buying apartment... questions about own capital

Ah i just posted a thread to ascertain the minimum put down capital in Switzerland.
That is around 20%.....
Good to know thanks for that.
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Old 04.09.2015, 09:04
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Re: Buying apartment... questions about own capital

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The 20% own capital does not need to be entirely in cash, part of it can also be transferred from a pension fund. The minimum amount that can be withdrawn from a fund is Fr.20'000.--. There is also a limit to how often you can make a withdrawal.

Example: Home cost: Fr.200'000.-- paid from:
80% Mortgage from bank: Fr.160'000.--.
10% Own capital cash: Fr.20'000.--.
10% Pension fund transfer: Fr.20'000.--.

Meaning you don't always need the full 20% in cash in advance! I personally had it and so paid the 20% in cash and so didn't dip into my pension fund, a wise move in my case, since I now receive payments from it, but I know people do do this as not everyone can muster the 20% from what they earn.
Not really surprising, all the money you save from non payment of Bilag
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Old 04.09.2015, 09:10
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Re: Buying apartment... questions about own capital

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Not really surprising, all the money you save from non payment of Bilag
I paid the full 20% in cash.
I didn't use my pension fund thankfully, although I could have done, it would have drastically decreased my present income (not that I was informed about that at the time though by the bank)!
Why would I want to waste my money on paying something called 'Billag' anyway?
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Old 04.09.2015, 12:21
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Re: Buying apartment... questions about own capital

I had a discussion with a colleague who just bought an apartment this year. She said that she put more than 20%, and also she took a relatively short hypothèque (only 10 years). The reasons for her is that if one day you want to sell the apartment you need to pay back the remaining years first. Is that true?
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Old 04.09.2015, 12:34
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Re: Buying apartment... questions about own capital

Of course, if you contract to take out a fixed-rate mortgage for a fixed term, then you are liable to pay all the interest due over the full term. You may be able to negotiate some sort of a deal, though, if you need to break the contract. In my fixed-rate, fixed term contract, the bank actually has to pay me if I break the contract and the prevailing interest rate is higher than my contracted rate (which it would be, since the fixed rates today are based on/influenced by negative LIBOR rates).

Alternatively, the usual reason for breaking a home loan contract is selling your home. Usually you can transfer your remaining loan to the buyer, if the buyer is willing. With home loan rates at an all-time low right now, you might expect to have little difficulty in finding a buyer eager to take on your remaining debt.
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Old 04.09.2015, 14:33
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Re: Buying apartment... questions about own capital

Hi HappyRobbie

One thing to consider when you are looking for your mortgage, is that you can split the amount into separate mortgages. For example

Apartment purchase price 1,000,000
20% cash payment, 800,000 to borrow.

200,000 for 8 years at 1.64%
400,000 for 5 years at 1.27%
200,000 for 2 years at 1.10%

It means that you have to re-sign every few years, but the advantage, is that you are covered for a longer period for stability, but also have a saver start advantage with low rates for part of your money, but you take a risk on the rates staying low.

It is even possible to split the mortgages between different banks !! But that could be too much paperwork.

At a later date when 1 of the mortgages become due, you can split again, or pay off part.

good luck with your purchase.

ps rates taken from ZKB.
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Old 04.09.2015, 14:45
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Re: Buying apartment... questions about own capital

We will have a 73% mortgage on our new place; the 27% downpayment comprises cash, my 2nd pillar pension and a 3a pension.
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Old 04.09.2015, 14:49
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Re: Buying apartment... questions about own capital

Last thing you want in this issue is hear what your bank has to tell you.

Banks will want you to have the biggest debt with them. So they get more from interest. You need to check your income tax difference when you have the appartment and without the debt. You need to find what is the app valuation in the kanton.

I personally prefer to pay 10 in tax then 8k in interest rate. Tax is used for something good after all.
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Old 04.09.2015, 15:29
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Re: Buying apartment... questions about own capital

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Last thing you want in this issue is hear what your bank has to tell you.

Banks will want you to have the biggest debt with them. So they get more from interest. You need to check your income tax difference when you have the appartment and without the debt. You need to find what is the app valuation in the kanton.

I personally prefer to pay 10 in tax then 8k in interest rate. Tax is used for something good after all.
In reality if you pay 10k in interest you will save 2-3k in tax, personally I would prefer to keep 7-8k myself. Paying interest looks like a bad deal to me.
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Old 04.09.2015, 21:11
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Re: Buying apartment... questions about own capital

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Hi HappyRobbie

One thing to consider when you are looking for your mortgage, is that you can split the amount into separate mortgages. For example

Apartment purchase price 1,000,000
20% cash payment, 800,000 to borrow.

200,000 for 8 years at 1.64%
400,000 for 5 years at 1.27%
200,000 for 2 years at 1.10%

It means that you have to re-sign every few years, but the advantage, is that you are covered for a longer period for stability, but also have a saver start advantage with low rates for part of your money, but you take a risk on the rates staying low.

It is even possible to split the mortgages between different banks !! But that could be too much paperwork.

At a later date when 1 of the mortgages become due, you can split again, or pay off part.

good luck with your purchase.

ps rates taken from ZKB.
Usually that's bad advice because you're effectively binding yourself to the bank you're using already:

A bank is highly unlikely to give you 2nd or 3rd rank mortgage, even if it is for 200k on a home with 1mln value that has 500k mortgage owed to another bank, at 1st rank rate. Simply because the first 500k rank superior (the mortgage contract will contain such provision) so the new bank needs a higher interest rate. So you're effectively forced to roll forward with the present bank until all portions run out simultaneously. Which obviously results in a very poor bargaining position for you.

Of course the bank will advise you to do exactly the opposite, i.e. advise you to split, knowning you'll be effectively bound to them.

Remember to get quotes from the insurers, all things equal they're usually considerably cheaper than the banks. Think of it as splitting the bank's margin between the insurer and you.

There's a few mortgage brokers that give you the best offer of the potential creditors they work with. homegate and hypomat come to mind, though there may be more, like swissquote. There's also those usualls ranking among the top contenders simply because they're inexpensive, like migrosbank and postfinance. "Finanz und Wirtschaft", a swiss financial newspaper with two issues a week(saturday and wednesday), often shows a quick survey, mostly as a tool to gauge the rate's general direction, differentiating between LIBOR, variable rate and fixed rate types. The last survey was in their august 19 issue, if you buy the paper for a month or three that survey alone will pay for the newpaper price many times over (nope, I'm not affiliated with FuW or TAmedia).

Last edited by Urs Max; 04.09.2015 at 21:28.
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Old 05.09.2015, 23:10
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Re: Buying apartment... questions about own capital

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"Finanz und Wirtschaft", a swiss financial newspaper with two issues a week(saturday and wednesday), often shows a quick survey, mostly as a tool to gauge the rate's general direction, differentiating between LIBOR, variable rate and fixed rate types. The last survey was in their august 19 issue, if you buy the paper for a month or three that survey alone will pay for the newpaper price many times over (nope, I'm not affiliated with FuW or TAmedia).
UBS also has a rate forecast newsletter which you can subscribe for free
https://www.ubs.com/ch/en/swissbank/...umfeldabo.html
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Old 06.09.2015, 12:53
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Re: Buying apartment... questions about own capital

Related:
https://www.zkb.ch/de/uu/nb/publikat...ewsletter.html
Also with an "interest rate forecast".

I've got a lot of these in my inbox back to about August 2014.
Their prognosis for the interest rate of a 10 year mortgage in August 2015 was 2.61%.
The current newsletter has it at 1.96% - and at 2.16% in August 2016.
Whereas they have the 6-months libor at 1.1% - now and in one year.

"Predictions are difficult, especially about the future".
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