There are some interesting discussions here on buying real estate for yourself. Here and there people mention a rate or details, but I couldn’t find a specific thread.
Me and my husband are looking for a mortgage to buy a new apartment in Zurich and wonder if anybody is able to share some insights.
Online I find the comparison sites which brag with the lowest rates (e.g. 0.6% for a 10-year fixed) but require you to pay a fee and they mention they receive a commission. And the big lenders publish rates like 1.2% but it seems they offer plenty of discounts and special rates.
In my case, we want to borrow above a million. We can provide the 20% equity and also pledge pillar 2 for another 15%. We could do even more equity but prefer to start with 20% and keep the rest invested. In the affordability test, we just pass the bar with our two salaries if we use 5% interest, 1% side cost.
And how do banks and other lenders account for income like bonus payments or dividends from ETF portfolio? Is income more important than the equity you have? Or you need to sign up for life insurance or buy managed funds and so on to get the good rates?
Does anyone have recent information on what rates to expect or what we can negotiate for?
Last April, I renewed an existing mortgage at UBS at the rate of 0.81%/5 years. Amount is 200k, it’s an old house that I am renting 1300/month.
3 month ago, a colleague of mine bought a flat “off-plan” for 550k, the broker working for the developers negotiated a rate of 1%/10 years at Basel Kantonalbank for him.
I tested a couple of comparison sites but they never showed me very good offers. The proposals listed were more or less the rates publicly exposed on banks websites. Maybe use these sites to get an idea, but you can certainly find better offers by contacting banks yourself, provided you have enough time left.
If you just pass the bar, I would maybe think about increasing slightly the equity. More equity = greener light and better affordability = greener light as well. You’ll do both at the same time.
Choose a good bank and look really well their fee if you need to open an account for xCHF per month fee for renew mortgage or fee for reimburse or change anything 0.2% is low and not think some bank go really lower.
The 0.81% was a renewal, I asked an offer to my other bank (BCVS) but the best they could offer me was around 0.9X%, they went 0.15% lower than their first offer. When I told my contact at BCVS that UBS was lower (0.81%), he said very clearly that it was impossible for him to beat them, knowing the margins of the bank.
Since the expired contract was 3.1% (don’t laugh, that was a very good rate 10 years ago) and the amount relatively low, I decided not to over-optimize and stay with UBS.
The things that played against me were
Relatively low value contract (200k).
High debt level (I own two properties, total debt is nearly 1mo)
As @OogieBoogie said, they will lower their rate if you bring them more affairs (investments, 3rd pillars). But I would not expect to cut the rate in half, a 0.2% reduction already seems on the very high side. I think anything below 0.8%/10y can only be offered by an insurance company, unless you have millions of cash and make 300k/year.
There is a lot of flexibility in the interest rates. I offered 0.79-1.10% for 10 years in the last couple of months, depending on the client (all retail clients).
Having a higher mortgage gives you actually better interest rates. The costs are always the same for the bank, so assuming the house costs 1 million they would rather have 0.80% with a 800k mortgage than 0.90% with a 600k mortgage.
Thank you for this insight Cortana. In Zurich nice appartments are above 1 million so the amount would be a plus for us. Could you share what features the more attractive customers have? Is it equity, income, other features?
If people get 0.81% for low volume and with high debt (true, for only 5 years) then banks could propably do even better than 0.79%?
Libor is around what, -0.8%?. Of course the bank needs to cover their risk, and wants to earn a margin, too.
But still, I guess we need to do some rounds of meetings and comparisons to understand what is a fair %.
The more business you are making with the bank, the better the rates will be. For example having a bank package for you and your wife/husband, having accounts for the kids, saving/investing with them etc.
Interest rates are complex. While Libor might me at -0.75%, that doesn’t mean that a 0.60% libor mortgage will let the bank earn 1.35%/year. Because banks aren’t charging negative interest on your bank assets, this loss (750CHF/year for every 100k of cash assets) will be cross-subsidized with the credit business. Lower negative interest rates thus lead to higher refinancing costs for the bank. Adding risk costs of around 0.30%, the net margin of a 0.60% saron/libor for the bank will be around 0.30%. This is ignoring the costs of infrastructure and employees. Either way, in my experience a fair offer would be:
Not sure bonus will be taken into account! Also I heard that often both salaries of the couple won’t just be added up… So 1 + 1 doesn’t give 2 for the banks (but gives more something like 1.5).
I recently got a mortgage for 5 years with final rate at 0.64%
Offer was 17.2% cash and remaining pledged accounts for Pillar 3A
Also had an offer from a Kantonal bank for 0.55% for 5 years, with the proviso that we fund the full 20% in cash and move account relationship, salary accounts, Pillar 3A from my current bank.
In the end, it was too cumbersome, and plus my bank matched the lowest offer that we got from Migros Bank, so we were happy to stay with them.
Also, shout out to @Cortana for guiding me thru the mortgage process. His advice was a big factor in securing a good rate!
you can find 0.3 -0.5 or so quite easily for a short term.
In fact, my next tranche renewal if everythign(1 year ) looks as today I will go for a year or 2 years contract. I believe that Interest rate will be still negative for a while, so why we would like to overpay.
As already mentioned here just ask 4-5 banks to submit an offer at a given date. Ask for quotations from at least a big bank, a challenger (like Migrosbank), a local bank (like Raiffeisen).
On the day they submit their offer, take note of the public rates and compare to the offered rates : it shall give you a good indication about your level of negotiation (usually around -0.30% vs. public rates).
Do not take these “best rates” (the 0.6% for 10 years you mentioned) for granted/achievable as you need to fulfill some specific conditions (eg new construction, no pledging, etc). These types of services (like Moneypark) are for people who do not have the time to make a proper “request for proposals”.
This process (including meeting each bank) takes a lot of time but for fix mortgages it makes a big difference on the contracting period.
Totally agree. We did some homework before and for the next step are ready to compare different offers so we don´t need to pay someone some advisor a fee or commission.
And for 10 years or more contract it should be time spent wisely.
In those meeting I should also learn how they include ETF income
Other factors to consider besides negotiated rate:
amount of direct or indirect amortization (can vary a lot),
and the maximum annual amount you can exceptionnally amortize during the mortgage period
Let’s assume you buy something for 900k with 180k equity and 720k mortgage. Banks want you to reduce your mortgage down to 2/3 within 15 years or at least build up enough pledged assets to get there (indirect amortization). So from 720k to 600k within 15 years means you have to amortize 8k/year. There are basically two reasons why banks want this. First they reduce their own risk if the house needs to be sold. And 2nd your income will be reduced significantly once you are retired and thus your debt sustainability will be lower. That’s why with indirect amortization with 3a pledging you don’t have an obligation to amortize the mortgage after 15 years. They’ll let you wait till you want to retire and check the situation then. Maybe once you retire the house isn’t worth 900k anymore, but 1200k. So your mortgage (still 720k) just makes up 60% of it and thus making further amortization obsolete, your 3a will be freed if your retirement income is high enough to substain the 720k mortgage.
Now you have 2 options for amortization:
Directly. Mortgage will be reduced by 2k/quartal for 15 years.
Indirectly. You have to use their own 3a and pay a combined 8k/year into it. You are still able to invest it, but you need to use their funds.
You might think now “No way I’m going for their shitty actively managed 3a solution, I’m going to amortize directly”, but from a financial side this is the worse decision. You basically end up investing 8k per year into your property to reduce your interest costs by less then 1%. A wiser decision would be to pay 8k/year (4k each) into their 3a and the rest (2.8k each) into Viac. Then invest anything else what you save in IBKR.
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