About to buy a flat, need help with the mortage

Real Estate
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Hi Guys

We are about to buy a flat in the suburbs of ZH. Here are the numbers:

Flat has a size of 4.5 and approx 120sqm
Age: New will be built within the next 3 years
Location: Very good location with partially lake and mountain-view
Price: 1’660’000 incl. a parkingplace

People: 3 (Ms. Balaclava, our kid and I)
Age: early thirties
Income combined: 200k p.A.

Savings (combined mr and ms Balaclava):
2nd Pillar: 140k
3a: 130k
Bank Account: 60k
Depot 420k mostly VT

No Debt.

I know its a crazy amount for a flat without a helipad, but it checks all the boxes we want and the location is very good, so we decided to go for it.

Now to the questions:

  1. Our plan is to pay 15% while taking out the cash of the 2nd and 3rd pillar, get a 10y mortage and amortize indirectly over 3a again. Is this a realistic scenario?

  2. What mortage-rates can we expect?

  3. Which banks are open to only 10-15% of downpayment?

  4. Is it a whise decision to empty 2nd and 3rd pillar? we think its right since its reduces the opportunity cost compared to selling VT.

  5. How much down must the mortage be if we want to FIRE with lets say 2 MCHF in NW? Will the banks still play the game if the income drops substantially to 80k p.A. ?

  6. What are the questions I should ask but didn’t :-)?

Since I try to contribute here as good as I can, I really hope that some of you with deep expertise in mortages are open to take the time to answer my questions.

Best, Balaclava

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As far as I remember none since 20% is the legal minimum. Furthermore, max 10% can come from your 2nd pillar.

Questions : you say it will be built only in three years right ? That would be kind of a terrible deal to pay that money for nothing in advance. Furthermore, I would make sure that everything is properly specified…
On the other hand, you say it is from the thirties, so not sure how to interpret it.

Did you check quality of the main building with a professional (if you are not yourself)
What kind of copropriety it will be ? How is the financial status of the copropriety ?

From what I see, you got the financial power to buy it with a mortgage if you sell some of your VT. Mortgage rate others will be more qualified to reply.

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As of 01.01.2020 25% is the legal minimum.

I got a 10y mortgage in 2019 for 0.95% for 10years fixed. I’d assume you could get like 0.9% now?
I got offers from around 4 banks, decided which one I’d like to go with (more sympathetic than the other ones) and showed them the lowest offer I got from another bank. They undercut that offer by 0.05% without any issues.

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Furthermore, more important than the interest rate could be flexibility (you have nice bonus possibles, which you could you use for faster down payment if needed)

Thanks, haven’t seen that change until now

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Thanks for your answer,

Yes but you can pledge other assets and reduce the downpayment, anybody experienced with that?

of course, yes its a big development and you pay 80% when you get the keys. No worries on that side.

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Thanks for the reply!

Where did you get that information from? I though it only applies to rental buildings.

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Good point! Anyone knows what kind of a flexibility is possible with mortages?

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Still, means you will have to oversee construction eiter by yourself or a professional to be sure you get the quality promised.

So do you pay 20 % now or how does it work ?

No information about pledging your portfolio, especially for the legal minimum. Discuss it directly with the bank. For me that would be a detail.

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There’s usually a reservation contract (for me it was a flat 50k CHF) which acts as a letter of intent. Then before the key handover there is the actual purchase contract.

It’s 20% downpayment minimum out of which only 50% can come from Pillar 2 and Pillar 3a. The other 50% have to come from cash or pledged assets.

Today I personally would rather pledge my VT and Pillar 3a to not be out of the market for too long.

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You might think you got enough money, here’s how the bank will calculate if you can afford it:

Price 1’660’000
own capital 20% 332’000
Mortgage 1’328’000

hypothetical rate 5% 66’400
maintenance cost 1% 13’280
amortization cost* 15’493

Total annual cost 95’173
total annual income 250’000

affordability not given 38%

*) mortgage has to be down to 66% within 15 years

The affordability has to be below 33%. Even though we might have interest rates below 1.5% for the next 10 years, the banks elect to play it safe by calculating 5%. Play around with the UBS mortgage calculator to see how else you can afford it.

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Not quite.

At least 10% of the value of the property must not come from Pillar 2. But it can come from the Pillar 3a.

I think this means that you can commit 10% of “hard cash” from 3a and taxable accounts and 23% from the 2nd pillar. This would help with the affordability because you don’t need to amortize.

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Oh yes, you’re actually right, it only applies to investment properties

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Our bank offers 20k CHF “Sonderamortisation” per calendar year. We used to have 50k CHF in the past. Certainly negociable.

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If understand well 10% from cash and Max 10% from a mix of pillar 2 and 3a.

Is pillar 2 and 3a pledged or the money are actually taken from the bank?

If taken, can you pledge any pillar money?

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10% has to be cash, this is the legal minimum. Anything else is open for discussion.

Interest rates on longterm mortgages went up by 0.30-0.40% in the last 6 weeks, just be prepared for higher rates.

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Long term interest rates went up everywhere.

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It’s crazy. If you get 10 years for under 1.10% today, it’s an amazing offer. 3 months ago it was an average offer.

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First of all, fingers crossed that you get well soon!

Now to the point - what do you think about what future brings as regards the rates? I guess they went up because of this bonds yield recent behaviour? (I’m asking that I might need the mortgage soon…)

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Just go libor/saron, it should be possible to get a contract with ~0.5% profit margin for the provider.

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