I’m considering purchasing a property on the border near Basel (German side). I’ve been offered a CHF mortgage by one of the German banks instead of a EUR mortgage. The difference in rates is significant 2% (CHF mortgage) vs 4% (EUR mortgage). The property will be rented and I don’t mind keeping the income in EUR and investing into some EUR stocks.. Am I missing something or is the CHF mortgage a no-brainer?
Had you taken a 100k EUR interest-only mortgage 5 years ago, it would now be 83k CHF.
Had you taken a 100k CHF interest-only mortgage 5 years ago, it would now be 100k CHF.
So you made a loss of 17k over those 5 years.
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I don’t understand this terminology. Is this referring to the 2% CHF and 4% EUR rate?
Thanks for the responses, some more context: The mortgage will be fully paid off within 10 years. Over 10 years I’m saving around 30’000 EUR in interest payments if I take the CHF mortgage. If my math is correct the CHF would have to gain around 26% over the EUR in the next 10 years for me to break-even and start losing money (maybe even more since I will be actively paying off the principal)? The CHF mortgage would also mean I don’t have to convert currency every month to payoff the mortgage.
I don’t see a fundamental point against the CHF mortgage. Some anecdotal thoughts:
- 2% for a 10 year fixed mortgage in CHF seems quite high. This post mentions 1.45%. But for a German bank it’s probably wise to ask for a higher rate, since they have to deal with fx risk. And I guess no Swiss bank would give you a mortgage for a property in Germany.
- IB would give you a rate of 1.15% for a 300k margin loan in CHF (see screenshot below). But of course, a margin loan is a completely different game.
Assuming a 500k EUR mortgage, my AI gave me an annual CHF appreciation vs EUR of 3.7% as break even, considering a linear amortization of the principle. The annual view (instead of your 10 year view) probably makes more sense than a 10 year view, since the effect is much larger in the first few years of the mortgage.
If you only look at the principle as an expense to be paid off, then it’s true. But if you consider the value of the property as a whole and you convert this value to CHF, a potential depreciation of EUR against CHF affects the whole value of the property, not just the outstanding principle. But you probably have good reasons to have a large part of your wealth in a EUR property, so your thinking is correct.
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Great analysis! Many thanks 
2% sounds amazing until CHF jumps and your payments suddenly feel way bigger in EUR lol. If your income’s mostly EUR, I’d at least run the numbers for a bad currency swing first.
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Good point but luckily this will not affect me since I earn in CHF. I think if I were earning in EUR I would reconsider this approach entirely..
Would getting that mortgage from a Swiss bank potentially not be even cheaper?
As far as I know there is no Swiss bank that would give a mortgage for a German property..