Best financing strategy for mortgage

Hi all, I feel like there have been a lot of real estate discussions over the last couple of days on the forum, but would still like to get some personalized advice on the financing our or project, especially how much we should put down.

We are buying a single family home built in 1981 which needs to be extensively renovated, and are already registered owners in the Grundbuch, but usage rights (Schaden-Nutzen) will only transfer on 01.10.24., therefore we got a Zahlungsversprechen from my employer (a Swiss bank), but have not yet taken out a mortgage / signed a mortgage contract. We could still get a mortgage somewhere else against a small penalty fee, and in fact, are most likely to do that, as I’m leaving my current employer and joining another financial institution with beneficial employee conditions for mortgages (Saron 25 bps / fixed 10 bps above financing rate).

We bought the house somewhat under market for 1.0M, bank valuation was around 1.2M. The renovations are estimated at 575k, so we are looking at 1.575 M total investment, which needs to be financed. Our combined income is around 230k p.a. (depending on bonuses). Our assets (wife and myself), are structured as follows:

Asset His Hers
Cash and savings accounts 149k 20k
Early Inheritance (cash) 0 300k
ETF Portfolio 83k 28k
Cryptos 16k 0
Pension fund 2a** 154k 50k
VIAC 3a 38k 21k
Total 440k 419k

**My pension fund is quite good (high returns) while her’s is hot garbage.

Know, I’m wondering how we should structure the financing. Given the affordability calculations, we probably have to bring in at least 440k (28%), but I was considering upping our own capital to around 575k (36.5%), therefore avoiding amortization requirements. On the other hand, we can get quite cheap mortgage rates and opportunity costs are obviously higher if we do this. In terms of assets to use, my wife will contribution the 300k early inheritance and I was planning on liquidating my ETF’s and using the cash, but that does still fall short 43k. So I’m struggling a bit on how to structure this best.

Any suggestions? Things I’m not considering?

Perhaps you could also pledge one or both pension funds, as well as the 3A accounts. To my understanding, the money stays where it is, keeps the associated benefits (sometimes a life insurance component of the pension fund amount) and continues to grow.
The amount pledged from these account is not fully counted as hard funds, but it would still help reaching your target.

1 Like

Just from experience - by the time you need the full amount of money for these renovations you will have it… it will take you like 1,5 years until the last invoice has to be paid and by then you have easily accumulated the 43k.

We have exactly done this and brought our own capital to around 35% in order to avoid amortization. This was back in 2016 - now the property is valued differently so we’re at 47%… without any amortization! And you have an advantage with the low interest rates … I’d rather keep the money in ETFs/Viac and Pension and just see where you get with the cash + time to accumulate more cash… it doesn’t make sense to put all that money into a house to just reduce the mortgage… today we have 250k combined in ETFs and VIAC but 1 Mio in the house… the 250k generate much more interest than I’d save having an even a smaller mortgage…

1 Like