Ammortisation of second mortgage via Funds or Cash

Real Estate
1

Hi

I just bought a house this september with 2 mortgages. Now for the second mortgage we do indirect ammortisation in Switzerland.

Now my bank offers a Fonds solution with Swiss Life to do the ammortisation. I asked them for a MSCI World kind of option and the closest thing they have to offer with their provider is the following fund → https://ch.swisslife-am.com/content/dam/slam/documents_publications/investment_foundation/de/f/dage.pdf

In addition i will pay 0.15% for the depot yearly and 1% courtage if i buy the fund.

The other option would be just keep the money in cash and dont invest. but then i guess the bank will use the money to invest and take the profit.

What i ask myself now is is it worth the 1% courtage and with this kind of MSCI World ETF to invest the money or should i keep it in cash on the account?

Thx for your help

2

Would just paying off the mortgage do better than holding in cash?

3

Taxwise we could declare a bigger debts at the end of the year if we do it indirect.

But to compare the 2 options cash vs funds i guess the fund is still the better option even if its not really a low cost funds (TER 0.69%) and with the 1% courtage for each buy.

4

Is the fund option back-repayment of the 2nd mortgage, I assume? If so, you have a 1% buy deduction + 0.69% + 0.15% ongoing. And you need to outperform the mortgage accumulating interest of 1-2.7%. Model it what to find out the needed fund break even performance over time period you want for repayment.

5

If you can afford it, wouldn’t it be better to use direct amortization while still paying the maximum into a finpension or VIAC 3a? You would still get the 3a income and wealth tax deductions and your mortgage interest payments should continuously decrease, without paying excessive fees for the 3a.

If you can’t do both, amortize directly and lock up the maximum 3a contributions each year, indirect amortization might indeed be better but I haven’t done the math.

https://finpension.ch/en/indirect-amortization/

3 Likes
6

Yes its to repay the 2nd mortgage. Our mortgage rates are 1nd mortgage 1.7% for 4 years left and 2nd mortgage for 0.9% 5 years left

I have do do an ammortisation fo about 3.5k in to the 3a Pillar at the bank. And the rest i would do into VIAC.

Its sad that the bank wants to have the 3.5k inhouse.

7

I don’t know any bank that would allow you to do indirect amo with an account that is not with the bank or with an institution that has an agreement with them as they need to check whether you actually pay the required amount every year. Pledging a 3rd pillar account that is not with the bank may be possible but doing indirect amo on it I have never seen. This also is a profitable business for them so I don’t really see the motivation to support something like that.

2 Likes
8

In my case the bank (Migros) only allowed indirect amortization with an insurance product. This is because they are interested in the protection against missing payments!!
They did not agree on direct amortization or even using their own 3a.
When I investigated my options at the time, I found Generali to be the cheapest (while still bad)
https://www.generali.ch/dam/generali/documents/files-en/produktedokumente/3a/Our-costs-compared-to-the-market