The Complete Guide to Mortgages in Switzerland
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In Switzerland, mortgages are not as simple as they should be! So, in this complete guide, I will share all there is to know about mortgages in Switzerland and how they work.
For instance, did you know that most people keep their mortgages forever in Switzerland? And did you know you could use your retirement money to buy a house?
Before you buy a real estate property, you must know about mortgages. You do not want to go to the bank without knowing first a few things. Otherwise, it could be easy for them to give you a bad deal.
Mortgages in Switzerland
Mortgages in Switzerland are complicated. While the basic idea is straightforward, there are many refined principles about them.
If you are planning to buy a house, it is essential to know as much as possible about mortgages. You do not want to get a bad deal from your bank because you do not fully understand what something means.
The most distinctive nature of Swiss Mortgages is that they are generally not repaid! In most countries, people are fighting to repay their mortgages entirely. But in Switzerland, most people will not reimburse more than 35% of the house value. And they will keep a mortgage for life.
The reason is the strong relationship between mortgages and taxes. It is essential to know this before you ever think of taking a real estate loan.
How much can you borrow?
An important topic is understanding how banks are computing how much they can lend to you.
There are some strict rules based on your income level. Generally speaking, with a higher income, you can pretend to a higher mortgage.
Now given the current record-low rates, you could think that you can afford a mortgage on luxury houses. And in practice, this is probably true. But the affordability computation is done using theoretical rates. The idea is that the bank does not want to lend you money if you cannot afford a rate hike.
So, banks currently use a 4.5% theoretical interest rate as a reference. Some are even using a 5% sample rate. On top of that, they are accounting for 1% amortization per year. And depending on the bank, they will account for between 0.5% and 1% in maintenance costs.
For instance, our bank, Migros Bank, used a total of 6.2% as the rate for computing the costs.
I do not understand why these rates are so high currently. The interest rates in Switzerland have never stopped falling in the last ten years. But this is not something we can do anything about. These high theoretical rates will highly limit your capacity to get a loan.
Once they have calculated the total costs of your house, this total must be lower than 33% of your income. So, in our case, 6.2% of the mortgage needs to be smaller than 33% of our income. You need to take 6.2% of the value of the loan into account, not the value of the house. In general, the mortgage will be 80% of the house value.
Depending on the bank, how they compute your income is slightly different. But in most cases, they will consider your previous year’s taxable income. And there are some exceptions. For instance, in my case, they refused to take my bonus into account because I could not show up for three years of bonus payment. If we had waited one more year, we could have afforded a significantly more expensive house.
Based on that, you can easily compute how much you can afford: House =(Net Income / 3) * (1/0.062) * (1/0.8). If your bank uses another theoretical rate, you can just change the 0.062 by the other rate. For instance, an income of 100’000 gives a maximum value of 672’043 CHF. It should give you a rough idea of how much you can afford.
It does not mean that you cannot afford more. If you want to borrow more than that, you will have to increase the downpayment you put down. By doing so, you will reduce the amount of mortgage and reduce the theoretical costs. But there is not much advantage in doing so.
If you want a higher mortgage, your best solution is to increase your income.
Downpayment – How much cash do you need?
The bank will not provide the entire value of the house as a mortgage. You must pay a part of the house’s value in advance. This advance payment is called a downpayment.
The reason for a down payment is to force people to save for a house. Authorities do not want to make it too easy for people to get a house if they cannot save money.
You must pay 20% of the house’s value in advance. So, your mortgage will be 80% of the house’s value. You could have a larger downpayment. But as we will see later, it is not always beneficial to do so in Switzerland.
At least half of the downpayment must be in cash. And the rest can come from your retirement money. To be precise, you can withdraw from your second pillar and your third pillar.
If you are younger than 50, you can withdraw your entire second pillar. If not, you can withdraw the money you had in your second pillar when you were 50 (or half of your second pillar when you withdraw, whichever number is higher).
Of course, you need to consider that this will reduce your retirement income. Also, regarding the second pillar, you cannot deduct voluntary contributions from your taxable income. You will first have to repay your withdrawal. And the voluntary contributions you made in the last three years cannot be withdrawn for a real estate property.
There are still a few solutions if you do not have 10% of the house in cash. However, if you cannot get this cash, you may want to wait or not buy a property. Otherwise, You could withdraw money from your family (never a great idea). Or you could even take another loan to get the cash. This last solution is quite risky and will increase your interest.
I would recommend you make a plan to save enough cash for the house. 10% of the property’s value is not that much if you can save enough income. And if you do not know where to start, I have a few tips to save money in Switzerland.
Other fees
The downpayment will not be the only thing you must pay in cash.
When you buy a house, you will have to pay several fees:
- Notary Fees
- Property Transfer Fees
- Real Estate Acquisition Taxes
- etc.
You can expect to pay about 5% of the house value in extra fees. It is very important to consider these fees since you will need to pay them in cash. Some banks may accept this into the mortgage, but it is rare.
So, before you plan to buy a real estate property, you should be ready to pay 25% of the house value yourself. And 15% should be in cash, not in retirement assets.
Amortization – Repay the mortgage
When you take a mortgage, you must repay 15% during the first 15 years.
So, every year, you will pay 1% of the value of the mortgage (not the value of the house). This money will get removed from the loan. As such, the interest you pay yearly will decrease over the first 15 years.
If you paid more than 20% as a downpayment, you would have less to amortize. You need your loan only 65% of the house’s value in the first 15 years.
While amortization should be simple, there are two amortization methods in Switzerland.
Direct Amortization
When you amortize your mortgage directly, you simply give money to your bank to reduce your debt.
Direct amortization is very simple. All the money you use will reduce your debt accordingly. And the interest you have to pay will be reduced as well.
Direct amortization is the standard amortization method that is used in most countries.
Indirect Amortization
The second option is to amortize indirectly through a third pillar.
Instead of giving money to your bank, you invest money into their third pillar. If you fail to pay interest payments, the bank has a right to these third pillar funds. And when you reach retirement age, the bank will use the money to amortize the mortgage.
Indirect amortization can also be done with a third pillar in life insurance. You can keep your current insurance policy and invest in it instead of amortizing the debt. And then, the bank will have a right on the insurance money if necessary. You must be careful because life insurance third pillar is generally a very bad investment.
When you amortize indirectly, your debt is not reduced. So, you will continue to pay the same amount of interest every year.
Indirect vs Direct
With direct amortization, your debt will be reduced, and you will pay less interest each year. It is not the case with indirect amortization.
So, why does that option exist? It exists for taxes. You can deduce your interests from your income. So, if you reduce these payments, your taxes will be increased. Also, the money in your third pillar is not counted toward your wealth tax.
So, it is more tax-efficient to delay the actual amortization.
Now, there is a disadvantage to indirect amortization that many people do not consider. The bank will not let you invest in the third pillar of your choice. They will force you to invest in their third pillar. And in some cases, they will force you to invest in cash-only third pillars.
If you have access to a cash-only third pillar, you may lose a lot of returns. But if you have third pillars with high stock allocation with this bank, the tax optimization part should compensate.
Generally, banks will also let you do a mix of direct and indirect amortization. So you have some margin of freedom with this.
So, you could lose a lot on your returns on this money by doing indirect amortization. So, it is essential to consider the pros and cons of both methods before choosing. And make sure to discuss also their third pillar options when you are doing that.
Examples of mortgages in Switzerland
We now have all the basic keys to run some examples:
- We know how banks compute how much people can afford
- We know we have to give 20% in cash in general
- We know we have to amortize 1% per year
- We know current rates are low, so we can use 0.8% as the real interest rate
- We can estimate the upkeep costs to 1% of the value of the house per year
So, here a few examples:
| Property Value | 500’000 | 750’000 | 1’000’000 |
|---|---|---|---|
| Downpayment | 100’000 | 150’000 | 200’000 |
| Mortgage | 400’000 | 600’000 | 800’000 |
| Sample Interest 5% | 20’000 | 30’000 | 40’000 |
| Amortization 1% | 4’000 | 6’000 | 8’000 |
| Upkeep 1% | 5’000 | 7’500 | 10’000 |
| Real Interest 0.8% | 3’200 | 4’800 | 6’400 |
| Sample Fees | 29’000 | 43’500 | 58’000 |
| Necessary Income | 87’000 | 130’500 | 174’000 |
| Real Fees / Year | 12’200 | 18’300 | 24’400 |
| Real Fees / Month | 1016 | 1’525 | 2’033 |
We can see from these examples that real monthly fees are currently really low given the current mortgages. On the other hand, the amount of income necessary for getting a mortgage is currently very high. It would be very easy to pay for a one million mortgage, but very few people would be approved for such a mortgage.
From these three examples, you can estimate where you are and what you can afford.
Kinds of mortgages
There are several kinds of mortgages in Switzerland.
The first kind of mortgage is the fixed-rate mortgage. This kind is the simplest. You fix the interest rate for a specific number of years. For instance, you could get a 1.2% fixed-rate mortgage for 20 years. It means that during these 20 years, you will pay 1.2% interest on your debt yearly.
The second kind of mortgage is the LIBOR mortgage. This kind of mortgage follows the LIBOR reference interest rate. It has a short duration (one to five years) and a change frequency (from one month to 12 months). If you have a frequency of one month, your interest rate will be adapted to the LIBOR rate every month.
The third kind of mortgage is the variable mortgage. Compared to the other kinds of loans, it has no duration. And the interest rate is also variable. However, the rates are significantly higher on this kind of loan. Since the rates have become lower these last years, this mortgage has become less popular. It makes little sense to use this kind of mortgage these days.
Which mortgage you should choose depends on your capacity to handle changes in rates. If you have a strong ability to handle risk, you should take a short-term mortgage or a LIBOR one. If you do not have a large capacity for changes in interest rates, you should try to use a longer-term mortgage.
You should also know that you can combine several kinds of mortgages. You could get a 5-year mortgage combined with a 10-year mortgage. If you do so, you should ensure that your loans will get renewed simultaneously.
For instance, you do not want to take a 4-year loan with a 7-year loan. You will never be able to change banks or cancel your contracts. A 2-year with a 4-year should be fine as well as a 5-year with a 10-year. But avoid a 3-year with a 5-year.
You need to be sure not to be locked with the same bank for too long.
LIBOR and SARON
The LIBOR (London Interbank Offered Rate) comes from the financial regulatory body of the United Kingdom. However, they have decided to stop this rate by the end of 2021.
So, some banks have already stopped offering LIBOR mortgages. And many people wonder what will happen to their existing mortgages.
Banks have decided to replace LIBOR with the SARON (Swiss Average Rate Overnight). The SARON is a daily interest rate developed by SIX and the Swiss National Bank (SNB).
We do not yet know all the details of the change to the SARON. But most banks expect that this will work mostly in the same way as a LIBOR mortgage. Also, since this is a Swiss interest rate, many people expect a higher level of transparency than the LIBOR. But we will have to wait and see.
Banks vs Insurances
Something surprising is that banks are not the only ones to offer mortgages. Large insurance companies in Switzerland are also offering them.
There are some differences in what they can offer you. For instance, insurance will generally only offer fixed-term mortgages. But they have some interesting offers with really long-term contracts.
Another big difference is that most insurers will not accept your retirement funds as a downpayment. It means that you will need 20% in cash. It is a blocker for many people.
If you have enough cash (or if you do not want to use your retirement funds), you may consider offers from insurers as well as from banks.
Withdraw or Pledge your retirement money
There is one extra special thing about using your retirement money for your mortgage. You have two choices, either you withdraw the money or you pledge it.
If you withdraw the money, it will be effectively removed from your second (or third) pillar. And it will use as payment to the seller. Doing so will effectively reduce your debt since you already paid it.
If you pledge the money, it will not be removed from the account. This money will act as a guarantee for the bank. In that case, it will increase the debt you have. If you pledge 10% of the house’s value from your retirement, you will have 90% in debt. It means that you will pay more in interest, and you will have more to amortize.
On paper, it seems like withdrawing has more advantages. But there are a few specific advantages to pledging your retirement funds:
- You will keep your retirement income.
- You will still be able to make tax-advantaged voluntary contributions to the second pillar.
- You will pay fewer taxes since your interests are higher.
- You will not pay taxes on the withdrawn amount (but you will pay taxes later on anyway).
Which one you choose will highly depend on your financial situation:
- Can you afford to pay more every month?
- What is your marginal tax rate?
- What kind of returns does your second pillar generate?
- Do you want to make voluntary contributions to your second pillar?
- Are you close to retirement?
I do not think there is a huge difference between the two models. If you are getting close to retirement, it may become important. But if you are young and your second pillar is bad (like most people), I think it is better to use it. That way, you will save more money every month, and you will be able to invest it at higher returns than on your second pillar.
Should you repay your mortgage?
In Switzerland, we have a system that puzzles many foreigners. Indeed, most people never repay their debts! You can keep 65% of the debt on your house forever!
In most countries, people will tell you to repay your entire debt. But in Switzerland, this is not efficient. Indeed, this will increase your taxes. And since interest rates are currently very low, there is not much value in reducing it. The value is better invested in stocks than in a mortgage.
For instance, if your marginal tax rate is 40% and you reduce your interest payments by 100 CHF per year, you will only save 60 CHF per year. So, this reduces the value of putting money in your mortgage.
So, in Switzerland, you should probably not repay your mortgage. There may be some cases where it makes sense to do so. But these are exceptions rather than the rule.
Renew your mortgage
Except for variable mortgages, all kinds of mortgages have a duration.
At the end of the duration, you will have to renew the mortgage. It means you will have to choose once again a mortgage. If you are lucky, interest rates may have gone down. So you will be able to renew your debt at a lower interest rate. If you are not fortunate, you will have to pay more.
You should choose again according to your financial capacity. If your situation changes, you might want a different contract than before.
When you renew a mortgage, you also have the chance to change banks. If you are not satisfied with the offer from your bank, you may want to change to a new bank. You could use offers from other banks as leverage to get a better offer from your current bank.
There is something fundamental about renewals. When you renew your contract, the bank will examine your financial situation again. They use almost the same calculations as to when you buy the property. If you cannot afford a new mortgage, the bank may force you to sell.
If you are in small financial trouble, they may be understanding. But you have to be careful about that. You can use longer durations if you expect your income to fall in the future.
Sell your property
You need to be careful with your mortgage when you sell the property.
There are two different situations. It will depend on whether you buy a new property or not.
If you buy a new property, your bank will generally let you transfer the mortgage to the new house. Based on the value of the new house, you may have to add some cash again to the deal. But in general, this can be done during the duration of the mortgage. You do not have to wait until the renewal of the contract. Of course, this will depend on the bank.
If you do not buy a new property, you must cancel your contract. It may be more complicated than you think. If you cancel a mortgage before the end of the duration, you will have to pay penalties. These penalties can be quite significant based on bank conditions. It could easily reach 50’000 CHF. So, you need to be careful about the terms of the contracts if you plan to sell your property.
Mortgages and retirement
If you buy a house close to retirement, you need to be sure you can keep your property once you are in retirement.
As mentioned before, when you renew your mortgage, the bank will check again if your financial situation is good enough for this debt. And if it is not, it may force you to sell your property. And it can happen even though you are retired.
When you are retired, your income may be significantly lower than before. So, it may be difficult for your income to pass the test for debt at the theoretical rates.
If your income in retirement is enough, you will have no issue. But if it is not, you have several solutions.
The first thing you can do is to amortize your debt. While this may not make sense from a tax point of view, it could be a great way to reduce your debt to keep your house in retirement.
Another way is to rely on your kids if you have any. You could sell the house to your kids before retirement and rent it from them. Or you could ask them to guarantee the house. It means that if you cannot pay the debt anymore, your children will be responsible for it. It is not a great situation. But depending on your financial situation, it could be working well.
Now, it is better to avoid this kind of situation. For this, you need to plan your retirement. You need to make sure you will have enough income in retirement so that you can keep your mortgage.
Can a foreigner buy a house in Switzerland?
Several legislations in Switzerland restrict how foreigners can buy properties in Switzerland.
This will not directly impact mortgages, but it is important to know. It is better to know whether you can buy in Switzerland before contacting a bank.
First, if you are a resident of Switzerland, you can buy a house here as long as you live in it. But you will not be able to rent it out to other people. You have to live in it. Renting it out, even partially, is illegal.
In some cases, you can buy a holiday home in Switzerland as well. But there are many restrictions, so you will need special permission as a foreigner. For instance, there are quotas in Switzerland saying that less than 20% of homes can be holiday homes. And you cannot rent it out for the year, only periodically.
Finally, if you are commuting to work in Switzerland and come from the European Union, you are allowed (generally, there are exceptions) to buy a second home (non-holiday). You will not be able to rent it out, and you will have to live in it when you work in Switzerland.
Now, not all foreigners are treated the same. It depends on the kind of permit. If you have a long-term residency permit (C), you will be treated like a Swiss citizen, and you can buy and rent it out.
So, as you see, foreigners cannot invest in real estate in Switzerland. But they can generally buy a house to live in.
How to find the best mortgage?
Almost every bank offers mortgages in Switzerland. So, it is not easy to find the best mortgages for your property.
First of all, you should always compare several offers. If you are with a bank that offers real estate loans, you should ask them for an offer. However, you should not simply accept the first offer you get.
If you can, you should also try to get some offers from insurance companies. The more offers you get, the better your chance of getting the best offer for your situation.
There are a few comparators online for mortgages. But I only found one helpful comparator. The mortgage comparator from moneyland is good. However, since not all banks are there, you should still contact a few banks yourself.
Conclusion
This guide covers all there is to know about mortgages. If you already know all of this, you will be well ahead of most people.
It is essential to learn about mortgages if you plan to buy a property. You may be lucky and deal with a very honest banker. But there are many stories of people getting a bad deal from their bankers because they did not know enough before discussing it.
So, before looking for a real estate property, you must study mortgages. And once you know enough, you can talk with a banker. You need to have all the cards in your hands before that.
If you are decided to buy a real estate property, I have an entire guide on buying a house in Switzerland. And, if you are still undecided, I have a guide on whether you should buy or rent in Switzerland.
Do you any more tips on mortgages in Switzerland? Did I forget anything?
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Hi, I came across your brilliant website and I would like to ask a few questions regarding the mortgage.
I am wondering if the banks or mortgage lenders are looking into minimum employment time or the type of employment contract (permanent or temporary).
Also, if the applicant is married or single are there any specific requirements to qualify? Thanks in advance!
Hi Vasi,
Yes, if you just got a new job and had nothing before, they will likely frown upon that fact. And if you have a short temporary contract, they may also not be happy. Usually, they will look at the history of your earnings. In my case, for Migros, they looked at the last 3 years of our taxable income as reference.
With married people, they sometimes only take into account half of the lower income to reduce risk, but that’s very likely different for each bank.
Thanks for the prompt reply.
I would like to ask one more thing only if you’re aware of it. In case you bring your savings from abroad to a Swiss bank is this subject to tax?
Can this money be used as a downpayment?
Hi Vasi
I don’t know. If you bring this while you move to Switzerland and directly declare it, it will be counted as wealth tax but not income tax. However, if you wait many years to declare and suddenly bring it up, this may be considered tax evasion and I don’t know what would be the penalty.
For mortgages, I think it would be fine as long as the source of the money is clear.
Hi Baptiste,
The standard case is:
– I pay 20% cash and I get a loan of 80%.
– I have to pay back until the loan sum is 65% within 15 years (paying back 15%).
– After those 15 years I renew the loan but will only pay interest on the loan and not amortize the loan sum (as I can keep 65% of the debt on the house forever and it’s typically more favorable given income tax / wealth tax).
–> So after 15 years, I actually truly own only 35% (20% plus 15%) of the house and am back to paying ‘rent’ (to the bank instead of to the landlord). Is that really worth it? If I run into financial problems in the future the bank can easily kick me out of their house (they’ll be the majority owner) pretty much like failing to pay rent.
Thank you for your advise.
Hi Raphael
You are correct that you will generally only own 35% of the house. And you also correct that you need good financials to keep the mortgage, but that’s the same with a rent, if you don’t pay it, you may be kicked out.
The advantages are that depending on the interest rate, you may pay less “rent” to the bank than to the landlord. You could also amortize extra to reduce the “rent” and you can make the house really yours by changing things which you can’t do if you are renting to a landlord.
So, it has advantages and disadvantages :)
Thank you for the excellent overview of mortgages in Switzerland. I am only starting to look at the prospect of getting a mortgage and owning a house.
Assuming I could put in more than the 20% downpayment and in particular I could put in ~35% so that I don’t need the second mortgage, how does repayment look like? I wouldn’t have to repay the 15% in 15 years (or retirement), so would I keep the first mortgage forever? Would I have to refinance?
Hi Chris,
You are correct, if you put down 35%, you wont’ have to amortize anything since you are already at the 65% required after 15 years.
And you can keep the remaining 65% forever normally.
Hello Baptiste,
Do you know if in this case (35% has been fully repaid this or that way), when one comes to the bank to renew the mortgage contract just for the interest of the remaining 65%, it will be guaranteed that the bank renews the contract?
Let’s say, by that time you went to early retirement, don’t work any longer, rented out the property in question and moved into something cheaper… You are still able to pay the interest to the bank, but don’t have a “good profile” as at the beginning. Would the bank still have the right to refuse the renewal of the interest for the remaining 65%?
No, it’s never guaranteed. And that’s an excellent thing to to take into account. If you suddenly has much less income, the bank may ask you to amortize further than the 65%. If you are renting out the house, it may be different because the income from the rental will be counted towards your income.
The bank always has a right to refuse the mortgage. In which case, you have a few options. You could amortize heavily (expensive), sell the house or try another bank.
In early retirement, for the house you live in, this can be a problem indeed. And even for standard retirement this is sometimes a problem. Some people are forced to sell their house when they retire because their income is not sufficient to cover the mortgage based on the theoretic profiles.
I’m really unsure what the best mortgage option is for me, especially as rumors suggest that the rates will decrease over the next year or two. Particularly the saron, which is forecast to go down to 1.36% +-.
I was offered the following options by a bank, but I’m not sure which is best choice or if a combination would be more suitable:
3yrs fixed: 2.12%
5yrs fixed at 2.19%
10yrs fixed at 2.36%
Alternatively, saron including margin at 2.3%.
Any guidance or thoughts? Thanks!
Hi Josh,
It all depends on many factors including your risk capacity. If you have very low risk capacity, you should take a 10 years because after 3 or 5 years, rate may be twice more expensive (we don’t know).
If you have a good risk capacity and you think that rates will decrease, it looks like the 3 or 5 years are good deals. You just need to be prepare for a rate hike later.
Hi Baptiste, thanks so much for the reply. Very helpful. I’m tempted to take a saron and a 10year fixed, just to hedge some of the risk.
Another question re. Amortization. Our amortization will be around 19’000 a year, 14k of which we will indirectly amortize. We have been suggested to take a 3b insurance out to cover the remaining 5k, but I’m hesitant, and I know you recommend against such policies. Besides directly amortizing the 5k, are there any other options available? Thanks!
Hi Josh,
I would personally prefer direct amortization over any indirect life insurance amortization.
Hello Baptiste
Do you think that a 5-year with an 8-year SaronFlex is a good combination?
I mean , the difference between 5-year and 8-year SaronFlex is 0.029.
But an 8-year Saron ( 2.401%) in comperation with a 10-year Festhypothek (2.660) is having a difference of 0.259 .
The 5-year with a 10-year looks good.
But do you think that a 5-year Festhypothek with an 8-year Saron is also good ?
Thanks in advance for your answer.
Your guides are really helpful. I trust your work and your opinion is seriously considered.
Hi Dimitrios,
The problem with this combination is that it will make it difficult to change both together because the two terms are quite different.
Why not make it simple and take either the 5-year only or 8-year SaronFlex only? Or even only the 10-year? In most cases, there is no reason to combine two tranches.
Hello Baptiste
I am one step before i close my contract. Recently I realise that PostFinance is having much better rates . As I have an upcoming appointment with PostFinanve about more details , i would like to ask you if PostFinance is reliable on mortages. I know is owned by the Swiss Goverment and i read your article about PostFinance but i didn’t find any ”independent” information about her mortages. Also i would like you to inform if possible , why most of the banks that I speak and insurances also, they ”break” the mortage in 2 different tranches like 5 years and 10 years. If I have the chance to take from mortage from PostFinanve shalli i do????? Also thιs last 2 weeks delay from my side is costing me enough on rates as they are becoming day by day higher. I ask you again about the 2 tranches because they offered that as an option, also they say that after the 5 years I could negotiate the terms of my contract. Of course I will not be able to pay my mortage in this time, also not after the 10 years tranche. I will need a little bit more time. But anyway there is a question that I missed to ask. For example after the 5 years , do I enter directly on the 10 years with the terms I agreed before ,no matter the situation of the market? The person responsible for selling the property will also be my new treuhand and today he told me that although he would prefer one of the ”local” banks to take my mortage, if we have that chance with better rates from PostFinance we should take it. In the next 15 years for example because of better rates I will be able to save a minimum 4000 CFR -to 8000CFR(that 8000 if i am lucky with the rates) Thank you so much for your answer and all your help!
PS. Please if you have the time to answer me today , it would be an extra help as tomorrow I have an appointment with Post Finance.
They are mostly using multiple tranches to make it look more complicated and lock in the customers with different times. I don’t think it’s very useful. Each tranche is renegotiated independently after the term.
I don’t have an opinion on mortgages with PF. They don’t provide it themselves because they are not allowed too, so they only act as an intermediary.
But you should really discuss that with the bank and ideally talk to several banks before taking a decision.
Hello,
would you explain why the 4 year+7 year contracts make it impossible to change bank? a bit confused here.
Thanks,
YM
Hi ym,
If you have a 4-year and a 7-year contract, you can only change bank when both contracts are getting renewed.
Y+4: renewal of the 4-year
Y+7: renewal of the 7-year
Y+8: renewal of the 4-year
Y+12: renewal of the 4-year
Y+14: renewal of the 7-year
Y+16: renewal of the 4-year
…
Y+28: renewal of the two contracts
You have to wait 28 years until both contracts can be changed the same year.
thank you！that’s clear. i am buying an apartment now. the bank seperated my lona to 5 pieces with different rates. The Saron rate (5 year) they offer is 2.2%. they also offer a fixed 2 year rate 2.2% and a 7 year rate 2.9%, pretty high at the moment. Any suggesiton on the mortgate rate?
Hi ym,
It all depends on your situation and on your risk profile. But for me, the 2-year rate does not make any sense, it’s too short. And if you have a longer term, you should ask for the last part to be either 5 or 10 years, not 7.
I you have the financial capacity, you can also take everything in SARON.
Hi Baptiste,
I may be mistaken but you should be able to renew your first 4-year contract for an extra 3 years so that it’s ending at the same time as your 7-year contract. Therefore, you would only have to wait 7 years to change your bank.
I have checked with one bank and they confirm that at the time of renewal you are free to choose a different period.
Yes, you are correct that when renewing, you can change the new delay and this will help. But most people won’t think of that and it will sometimes be inconvenient. But very good point!
Hi, with the current increase in interest rates in Q1Y23, would you recommend a SARON loan which is significantly lower? Or are there risks involved?
Hi Yan,
I would personally always take a SARON unless a fixed loan over 5 years is cheaper. In our case, we got an offer for a five year fixed that was lower than the SARON at that time. In 3 years, when we renew, we will likely take a SARON. But you have to keep in mind that with a SARON, prices can increase while fixed gives you more security. So, if you have enough income and flexibility, SARON is great.
Hi. can you recommend a buying agency that can take care of dealing with banks, real estate agency, lawyers, explaining my choices, and everything that the process of buying a house requires? I’m from Denmark, we have agencies like that – e.g. Bomae.dk
Hi Maria,
I have never heard of such buying agency.
Thanks haha I guess youre the closest that comes to it from what I could find.
If we are able to make our payments with direct amortization, as well as maximising our Pillar 3a contributions each year, would this be the most beneficial option? Would it be better than going with indirect amortization?
It strikes me that we would reduce our mortgage debt, while also benefiting from tax deduction from our Pillar 3a contributions, and hopefully compounding our investments through these Pillar 3a contributions.
Direct vs indirect amortization is a complex topic. In some cases, both can be better than the other. I have an article about that should be published soon, stay tuned!
Really good article and thanks for the advice.
I am in a scenerio at the moment and don’t know to continue renting or buying! We seen an apartment we like for 398K, we have the 20% deposit of 80k. We will live in the apartment for 4-5 years before maybe returning home. Are we able to rent the apartment out in Switzerland even though we aren’t living there? Or can we sell the apartment with the mortgage and get some of the money we have paid back? Appreciate any advice
Hi Colm,
For 4-5 years, it’s indeed a difficult solution.
Normally, you can indeed continue renting the apartment while you are living abroad. The issue with that is that you are forced to have a management company that will eat some of your returns. Also, it’s not always easy to deal with Swiss services when abroad. But, it’s possible.
Selling after 4-5 years is also possible, but there are some issues. You will lose about 5% in fees (notary, land register, …) when buying. Over 5 years, it’s difficult to get back this with house appreciation and savings. Also, when selling, you are going to pay a fee for the agency helping you to sell (unless you sell by yourself). And canceling the mortgage may be expensive. You could sell with the mortgage, but generally this makes it more difficult to sell an asset.
If I knew I would leave Switzerland in 4-5 years, I would not buy anything here.