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Old 05.03.2017, 08:17
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Loans [mortgages] in CH: Interest payments

There is much better general information about homeownership in English than in German but although the general information is useful, the detailed information focuses on the US market and is useless for us.

What I learned is that with a usual 30-yr fixed rate US loan in the first 15 years you pay around 80% to interest, taxes, and insurances and very little to the actual principal that build equity (that is why people say: you bought a home? - what a piti )

How is it here in Switzerland? The (fixed rate) loans here are given for 10 years, not for 30 years like in the US. I know there is this Eigenmietwert that one has to pay (any other taxes?) and probably there is some obligatory insurance also. Are there any other similarities / differences to US loans?
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Old 05.03.2017, 08:46
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Re: Loans in CH: Interest payments

Banks here don't really expect you to repay the loan. You can have a perpertual mortgage of 65% of house's value and pay just the interest on it, which is really really low these days, one of the cheapest sources of money out here. And it's tax deductible, swiss tax system really encourages debt. Only if you loan more than 65%, banks would expect to see some repayment for their own safety: you have to get back to 65% linearly within 15 years, i.e. amortize 1% per year if you loaned the maximum possible 80%.

A big difference is that swiss (and many european) mortgages are full recourse: you're liable for the debt with all your current and future wealth. Unlike US where they'd just take the house and off you go. Also it's hardly possible to go underwater: if house prices start drop, banks will talk to you and ask for cash or house well before they're in any real danger of loss.

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The (fixed rate) loans here are given for 10 years, not for 30 years like in the US
Fixed mortgages are really fixed here and any deviation from the contract will usually cost you quite a lot. You can't pay it pay off early whenever you want, you can't get off early without a big penalty. Are you really sure you'll be living in the same house for 30+ years?

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I know there is this Eigenmietwert that one has to pay (any other taxes?)
It's a tax, yes. Most countries tax properties in one way or another. Eigenmietwert is the local equivalent. It has nothing to do with the mortgage however.
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Old 05.03.2017, 09:06
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Re: Loans in CH: Interest payments

Generally, the 10 year fixed rate is for interest only (ours is).

If you need a loan for more than 65% of the value (NOT the selling price, unless of course the selling price is below the value, as was our case), then you will need a second loan that must be paid off in 15 years.

In our case, ours was below market rate, so our loan is for 70% of the selling price, and we could have gotten at least 10% more for renovations had we wanted to with still an interest-only mortgage.

Tom
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Old 05.03.2017, 11:03
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Re: Loans in CH: Interest payments

How can the 10 yrs fixed loan just be interest?

Let's say I get a 300k loan on 1%, that is just 3000chf in interest that the bank gains from me.

I feel I am not getting something.

Also, how / who can really judge the real value of a house? I mean it's all just educated guesses, right?
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Old 05.03.2017, 11:08
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Re: Loans in CH: Interest payments

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Also, how / who can really judge the real value of a house? I mean it's all just educated guesses, right?
Thatīs how it is in Switzerland.

Educated guess? No, the value of a house can be determined quite nicely. A bank will not loan you more than they think the house is worth and they have people who do the valuation
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Old 05.03.2017, 11:23
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Re: Loans in CH: Interest payments

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How can the 10 yrs fixed loan just be interest?

Let's say I get a 300k loan on 1%, that is just 3000chf in interest that the bank gains from me.

I feel I am not getting something.

Also, how / who can really judge the real value of a house? I mean it's all just educated guesses, right?
Obviously, you're not yet ready to buy a house here

Interest rates at BNS are negative, ie BNS pay the bank to take money off their hands, the bank lends to you at 1%, but they borrow at -1%, so the spread for little risk is 2%
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Old 05.03.2017, 11:45
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Re: Loans in CH: Interest payments

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It's a tax, yes. Most countries tax properties in one way or another. Eigenmietwert is the local equivalent. It has nothing to do with the mortgage however.
Just the opposite. Has all to do with the Eigenmietwert. It's the # 1 reason that loans never get paid off. Very big problem for folks in retirement and why they never pay off their mortgages.
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Old 05.03.2017, 12:24
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Re: Loans in CH: Interest payments

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Obviously, you're not yet ready to buy a house here

Interest rates at BNS are negative, ie BNS pay the bank to take money off their hands, the bank lends to you at 1%, but they borrow at -1%, so the spread for little risk is 2%
"Obviously, you're not yet ready to buy a house here " <-- when i read this I was like "why do people on the internet have to say such things?"

Anyhow, I am aware of the spread you described. This does not answer my question.


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Just the opposite. Has all to do with the Eigenmietwert. It's the # 1 reason that loans never get paid off. Very big problem for folks in retirement and why they never pay off their mortgages.
But you have to pay Eigenmietwert regardless of whether you have a loan on the property, no?
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Old 05.03.2017, 12:36
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Re: Loans in CH: Interest payments

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"Obviously, you're not yet ready to buy a house here " <-- when i read this I was like "why do people on the internet have to say such things?"

Anyhow, I am aware of the spread you described. This does not answer my question.




But you have to pay Eigenmietwert regardless of whether you have a loan on the property, no?
Because you can deduct the interest and if you repay the full loan = no deduction of interest. So that interest deduction offsets the Eigenmietwert
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Old 05.03.2017, 16:40
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Re: Loans [mortgages] in CH: Interest payments

If I only pay 3000 chf in interest, how can it be that I do not get any principal when paying of the first 10 yrs mortgage?
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Old 05.03.2017, 18:33
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Re: Loans [mortgages] in CH: Interest payments

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If I only pay 3000 chf in interest, how can it be that I do not get any principal when paying of the first 10 yrs mortgage?
You do not pay off/amortize. You just pay interest. After 10 years the bank says: Dear Mr./Mrs. Maxiii, you have 300k debt with us, what do you want to do? We can offer you a new loan for X% fixed for the next 10 years, interested?
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Old 05.03.2017, 19:30
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Re: Loans [mortgages] in CH: Interest payments

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Just the opposite. Has all to do with the Eigenmietwert.
Wrong. Besides the fact that both affect your taxable income, there's no relationship between them

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It's the # 1 reason that loans never get paid off. Very big problem for folks in retirement and why they never pay off their mortgages.
Any loan is deductible! Mortgage is not special here

The rates are extremely low and are even lower after deduction, that's why nobody pays mortgages off. But if the rates would jump to the sky, that'll change pretty quickly.

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If I only pay 3000 chf in interest, how can it be that I do not get any principal when paying of the first 10 yrs mortgage?
How much principal you pay and how much interest will be in your contract. If you borrow 65% it's possible to have interest-only mortgage. If you borrow more, the bank will force you to pay back at least something every year until you're at 65%. The rule is you should at 65% after 15 years (possible spanning several refinances), so with 80% mortgage, repayment would be at least 1% per year. You can repay more quickly during refinancing.

At current rates however it does not make any sense to repay. Central bank's money is cheap. Your own capital is very expensive.
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