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Old 17.08.2021, 13:33
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Re: Swiss Mortgage long-term

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Arrghhh. Why can‘t you people get past the imputed rental value. It is a constant whether you have the mortgage or not.

Assume you have a marginal tax rate of 40% on this 20k imputed rent. That‘s 8k. So you pay 10k to the bank and now you only owe 4k tax. If you think this is a good deal, we can swap bank details and we can do the same trade.

By investing the money that you could otherwise use to pay down the debt you are hoping that you can beat the interest rate. This is easy in the longest bull market of all time with the lowest interest rates of all time. Long may it continue, but it isn‘t a given.
I agree with what you’re saying here. However, I thought we entered a new bull market in April 2020 after an albeit short-lived bear market.
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Old 17.08.2021, 13:39
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Re: Swiss Mortgage long-term

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The guy is working for the bank, not for you. Good advice for the bank, bad advice for you. The bank would gladly have you paying forever.

It's sensible to have a plan and pay the house you live in. Ideally you pay it in advance so you don't need the bank. If it's not possible, get rid of the mortgage as soon as you can.


I would say exactly the opposite!

An interest-only mortgage at a rate below 1% frees the amount of the mortgage to be invested elsewhere where returns well in excess of 1% are easily obtained. Think of it a very low interest loan where the interest is tax deductible.

I wish my mortgage was bigger…
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Old 17.08.2021, 18:25
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Re: Swiss Mortgage long-term

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Paying 4k rather than 8k tax is of course a good deal!

Paying 10k to a bank on condition another financial institution ay me 50k also sounds like a great deal.

I know its not certain. But the money and investments are still there. If things go south you can still pay off the debt and sell the investments. There is a risk there but there is with everything.

Your argument is kind of like saying I wont pay for a tax adviser to help me, I will work it out myself and save that money, and calling the guy who pays a grand to the adviser crazy when he is saving 5 grand compared to you
Phil has covered this, so I‘m not going to waste my time. If you can‘t see the difference between this situation and paying an advisor for a real saving, it‘s beyond my skills or patience.
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Could you explain this point or point me to a thread where it is covered?

In my experience if you have a 40% marginal tax rate you get a reduction in your taxes of 40% of the mortgage interest
Yes, I am not disputing that you will save 40% of the interest. That is not the point. The point is that people somehow think that by paying the bank (in the example) 10k of interest and reducing their tax bill by 4k this is a good thing. You‘re paying 10k to save 4k. In fairness to them, the banks promote this and it is in their interest to do so.

The imputed rental on your tax bill is not contingent upon you having a mortgage or not. It is a constant that perhaps is part of your purchase decision (rent vs. Buy), but shouldn‘t be part of your financing decision.
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Old 17.08.2021, 18:29
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Re: Swiss Mortgage long-term

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I agree with what you’re saying here. However, I thought we entered a new bull market in April 2020 after an albeit short-lived bear market.
Did the blip in 2020 last long enough to be called a bear market? To me everyone had a bit of a (justified) panic, more cash got dumped into the system and everything has just carried on like it has since 2008/2009.
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Old 17.08.2021, 19:09
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Re: Swiss Mortgage long-term

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Did the blip in 2020 last long enough to be called a bear market? To me everyone had a bit of a (justified) panic, more cash got dumped into the system and everything has just carried on like it has since 2008/2009.
Yes, I believe it has been classified as such. It is considered a bear market when the market drops 20%+ from recent highs (typically S&P 500). However, I’ve also seen the word ‘prolonged’ used with respect to price declines and it’s perhaps fair to say that the crash that happened was not particularly prolonged. In any case, the S&P 500 declined around 32% if I’m not mistaken and the subsequent recovery has long since crossed the threshold for signalling a new bull market.
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Old 17.08.2021, 20:49
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Re: Swiss Mortgage long-term

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Arrghhh. Why can‘t you people get past the imputed rental value. It is a constant whether you have the mortgage or not.

Assume you have a marginal tax rate of 40% on this 20k imputed rent. That‘s 8k. So you pay 10k to the bank and now you only owe 4k tax. If you think this is a good deal, we can swap bank details and we can do the same trade.
Arrghhh. Why can't people see that the tax savings is not the reason to borrow and pay interest.

It is correct that paying 10k to the bank to save 4k of tax is really dumb. But people who take morgages do it so that they are able to buy property, not to save taxes. The tax savings just reduces the mortgage burden, that's all.

It is not "borrow money to save taxes".

it is "borrow money to buy property, but the cost of borrowing is reduced because you save on taxes".

In this example, I can borrow 1m and my borrowing cost is reduced from 10k to 6k. It is not about paying 10k to save 4k. It is about getting 1m and therefore owning my own property.

With that 1m, I get to live in place that is probably far nicer than what I could afford if I were paying rent. Without borrowing, I could never buy that property. But why continue borrowing and not pay it back over time? Well, someone already calculated that it would take 75 years to pay it back. So why borrow at all? This is just what people do as otherwise they would never be able to buy their own property.
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  #27  
Old 17.08.2021, 21:18
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Re: Swiss Mortgage long-term

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This is not a very good advice, I am afraid. Or maybe it's a good advice for very dumb people, because I (and nearly anyone) can invest capital at a rate which is considerably higher than the mortgage interest.
Those banks must be quite dumb to give you the money instead of investing the capital at a higher rate. You never had a second thought? A tiny little one?
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  #28  
Old 17.08.2021, 21:30
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Re: Swiss Mortgage long-term

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If you have a million in cash to pay off a property loan. You are saving yourself lets say 1% pa so 10k a year (currently) but you will also have to pay imputed rent on your property and have no deductions. So maybe the imputed rent is 20k. Therefore you pay income tax on 20k you dont actually earn.

Or you can keep the debt/maintain a loan. Pay the 10k interest a year. Reduce the imputed rent by 10k, so only pay income tax on a fake 10k rather than 20k. And invest the 1m you hold. And as long as you make net more than 1% you are by far financially better off.

On rough numbers. If you made 5% on your investments, you would be net 40k better off having the mortgage. Plus you would be paying 50% less imputed rent tax - on very rough figues
Not really. You assume you will always make money. In fact you might lose most of your money and not have enough to cover your debt, even you have sold your investment. At the same time the interest rate might jump at lets say 10% or more. I know it's hard to believe, but ask Biden about Afghanistan. Or ask him about the interest rates.

Long term consumption debt is always a bad idea.
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Old 17.08.2021, 21:42
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Re: Swiss Mortgage long-term

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Those banks must be quite dumb to give you the money instead of investing the capital at a higher rate. You never had a second thought? A tiny little one?
No, the Swiss government wants them to do so, so that people could keep their homes when their income drops due to retirement.
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Old 17.08.2021, 22:00
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Re: Swiss Mortgage long-term

On a related note, isn't this system a bubble? The new generations are expected to repay the old generations' mortgages. They can do so as long as prices keep growing, but in case of a major price drop the banks might be hit hard? Or are the Swiss banks so rich that they can wave the entire country's mortgage repayments?
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  #31  
Old 17.08.2021, 22:35
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Re: Swiss Mortgage long-term

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On a related note, isn't this system a bubble? The new generations are expected to repay the old generations' mortgages. They can do so as long as prices keep growing, but in case of a major price drop the banks might be hit hard? Or are the Swiss banks so rich that they can wave the entire country's mortgage repayments?
Property is rigged game in Switzerland in the hands of big institutions (pension, investment funds, government, bank etc etc.

Only 35% of RE is in the hands of private individuals (mortgage or not)

The rest is the big guys. It is a bubble but very difficult to pop
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  #32  
Old 17.08.2021, 23:39
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Re: Swiss Mortgage long-term

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Imputed rental is the same with or without mortgage.

Wealth tax is the same with or without mortgage.
Is the imputed rental tax applied everywhere in Switzerland? I'm sorry, maybe it's a silly question but sometimes I have the feeling that people here are living in their central Switzerland bubble. What about Romandie, Ticino?
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  #33  
Old 18.08.2021, 07:27
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Re: Swiss Mortgage long-term

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Is the imputed rental tax applied everywhere in Switzerland?
Yes.

Tom
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  #34  
Old 18.08.2021, 08:31
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Re: Swiss Mortgage long-term

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No, the Swiss government wants them to do so, so that people could keep their homes when their income drops due to retirement.
So the Swiss government of the people is taking care of the people. Using the banks as the instruments of the government wishes. Nice line of thought. In that case I wish you a good sleep and happy debts.
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Old 18.08.2021, 08:52
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Re: Swiss Mortgage long-term

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Is the imputed rental tax applied everywhere in Switzerland? I'm sorry, maybe it's a silly question but sometimes I have the feeling that people here are living in their central Switzerland bubble. What about Romandie, Ticino?
Defiantly Yes in Vaud. But we are still using the same value as when the house was built. Well under the actual rental value.

The existing owners can tell you what this amount is (if they are tax payers).
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Old 18.08.2021, 09:01
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Re: Swiss Mortgage long-term

The formula is:

Income plus rental less deductions (including repair and improvement costs, mortgage interest) equals taxable income.
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Old 18.08.2021, 09:25
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Re: Swiss Mortgage long-term

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The formula is:

Income plus rental less deductions (including repair and improvement costs, mortgage interest) equals taxable income.
I got lost. Do you mean:
a) income => your overall yearly income apart income from the property
b) rental => income from rent or, in case of absence, an imputed income from rent

or is it even more strange as imputed income from rent plus the actual, if any, income from rent...?

So I understand that the imputed rent income has nothing to do with the property value or current rent levels in the area. Is there any official source, maybe statistics what the actual amount is? I guess that when you buy a newly built house or apartment it should be clear what to expect, yes?

I have seen in some ads the amount for maintenance fund mentioned but never the amount of the imputed rent.
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  #38  
Old 18.08.2021, 10:39
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Re: Swiss Mortgage long-term

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I got lost. Do you mean:
a) income => your overall yearly income apart income from the property
b) rental => income from rent or, in case of absence, an imputed income from rent

or is it even more strange as imputed income from rent plus the actual, if any, income from rent...?

So I understand that the imputed rent income has nothing to do with the property value or current rent levels in the area. Is there any official source, maybe statistics what the actual amount is? I guess that when you buy a newly built house or apartment it should be clear what to expect, yes?

I have seen in some ads the amount for maintenance fund mentioned but never the amount of the imputed rent.
No, my formula is only for owner occupied homes.

And no, I don’t know how the values are calculated.
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Old 18.08.2021, 10:47
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Re: Swiss Mortgage long-term

income = your normal income that you have anyway during a fiscal year (salary?)
Rental = rental income from self-occupied property as estimated by the taxman

before owhing property (simplified)
income equals taxable income.

after owning property
Income + rental - deductions (including repair and improvement costs, mortgage interest) equals taxable income.
deductions are also amortisations of the 2.nd Hypo using the 3rd pillar. This leads all in all to the same taxable income as without property or just a little bit more.


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I got lost. Do you mean:
a) income => your overall yearly income apart income from the property
b) rental => income from rent or, in case of absence, an imputed income from rent

or is it even more strange as imputed income from rent plus the actual, if any, income from rent...?

So I understand that the imputed rent income has nothing to do with the property value or current rent levels in the area. Is there any official source, maybe statistics what the actual amount is? I guess that when you buy a newly built house or apartment it should be clear what to expect, yes?

I have seen in some ads the amount for maintenance fund mentioned but never the amount of the imputed rent.
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