Buying an appartment via 3a indirect

Real Estate
1

Hi guys

We are currently in the market of buying an apartment and I would like to get your feedback. I did go through the old threads, but still, it’s a big decision and I am a bit worried to have missed something (I am fine with compromises and drawbacks, but I’d like to be aware of them).

Here is our situation:

We (my wife – still in parental leave, our little one and myself) are in our mid-thirties and came to VS end of last year. We found a nice apartment that is currently being build and the basic idea is to diversify (we have an index fund portfolio and some cash positions currently). The property is slightly below 800k CHF and we want to go with minimum down payment. I went to a financial adviser to get some offers – the best: 10 y mortgage for 1 % fixed (I think that’s fine).

Unsurprisingly they advise to go with indirect amortization via 3a: life insurance with a fund portfolio (Pax fonds portfolio 100; management fee 1,4 % plus issue surcharge 1 %). According to the fact sheet the fund was established in 2002 (average performance of about 4,2 % p.a. after fee deduction). Obviously, I would rather go with VIAC or something similar, but I guess that is not going to happen. Still, I would assume (or must) an outperformance (fund performance after costs vs. interest rate of the mortgage #2) in the long run.

I like the idea of doing indirect amortization and the tax benefits that come along. On the other hand, if we need/want to leave Switzerland, we have to shift everything from 3a to 3b and the tax benefit is gone. However, paying back mortgage #2 at 1 % feels simply not right.

Have a nice evening :blush:

2

You must be new to the forum. One of the main points preached here, don’t mix investments with insurances. I’d just try to pay down more (for example by pledging some of the index portfolio). The tax benefit of a 3a which you still can have is not lost that way and you can use VIAC.

3 Likes
3

I wouldn’t do it.

I guess this is an insurance company trying to cross sell the lousy 3a insurance on top of the mortgage.

I guess you can still find the 1% for 10 year in normal banks whereby they would be more than happy to have indirect amortisation and you could still invest in one of their funds. Don’t expect VIAC fees but I believe still better than the 3a insurance they try to sell you.

On another note you mentioned that you may want/need to leave Switzerland. If you intend to sell the house then bear in mind that a 10 year fixing may result in high breakage costs

2 Likes
4

There is another thread with discussion on this buried in it somewhere. I believe UBS can accept 3a invested in their Vitainvest funds for both the compulsory 10% and the amortisation.

Funds cost circa 1% pa more than VIAC or Finpension but you can invest at 75% or 100% equities

What they permit from a risk pov may depend on your profile. In my case I could also pledge a decent 2nd pillar pension. If you just arrived in CH that may not be an option

1 Like
5

Thanks for the replies.

@MrCheese Yes, I am new to the forum, but that is exactly what I have done in the past and why I try to understand all implications. I don’t really understand the link to your suggestion to increase the down payment. I understand the advantage of the indirect amortization via 3a to be: tax benefits due to not reducing the mortgage (since I don’t pay the interests directly) plus the benefits of contributing to 3a.

@Moustakalis The mortgage would be from the local Raiffeisen and the life insurance package was their suggestion (I can choose whatever I like) to go with the amortization. Regarding the fees: I quoted the fund fees in my original post. Compared to other 3a fund solutions (bank, insurances) I found, they seem to be in the same ballpark. The insurance itself (death, invalidity, etc.) sums up to about 90 CHF/month. If we would need/want to leave Switzerland in the future, we would rather consider renting the apartment than selling it.

@Barto Thanks for the reference to the Vitainvest. I checked the World 100: management fees of 1,28 % and running costs of 1,64 %.

@all I really try to understand the down side of the life insurance aspect. Where is the difference in going with the bank only solution (funds equally expensive) and having the life insurance separately?

Am I missing something?

6

What you are missing is how much you are going to lose if you cancel the insurance. 10-15k is usually the case.

Keep in mind that after your amortisation with the banks shitty funds is over, you can stop contributing there and use VIAC instead. So you don’t want to be trapped till 65 with an insurance.

5 Likes
7

In principal I guess you need to see what portion of your money go towards investment and what is kept for the insurance part. Also, as @Cortana mentioned you have to see how much you have to leave on the table when you want to cancel the insurance…

Your 2nd pillar should give you death and disability insurance, so maybe you need to double check if you really need the extra life insurance…

Last, CS’s 3a passive funds have an “acceptable” TER of 0.78% and you can go up to 75% stocks. Don’t know their mortgage rates though and if they are competitive…

1 Like
8

@Cortana and @Moustakalis: I guess I will stick to the separation of investments and insurances (as before). In the meantime I have checked the conditions of my pension fund. It does cover for death and disability and the rates are quite decent in my eyes. So I will check carefully whether an additional risk life insurance (non-capital forming) is really required.

There is not really a transparent way of checking for available indirect amortization options out there, isn’t it?

9

I believe most banks would be fine with indirect amortisation since it is in their favour (you pay more interest and you put more collateral each year) so i guess you just have to analyse the differences of each bank’s 3a options and compare…