I am buying a house, your advise for the mortgage?

Hi, I am about to buy a house (couple) and I have some mortgage options on the table. I would like to avoid making a big mistake that I would regret in 5 years.

option 1, 20% downpayment and 80%mortgage:
I will have to Withdraw 1×LPP and 2x3a
direct amortizing
lower interest rate

Option 2, 12% downpayment and 88% mortage:
I will have to pledge 2×LPP znd withdraw 2x3a
Indirect amortizing via 3a insurance
Higher interest rate

I am worried about the Indirect amortizing on 3a insurance (life insurance), as I read on this forum, that it is a trap.
why 3a insurance looks so awful?
Did anyone manage to do indirect amortizing via banking 3a?
Would direct amortizing be a safe bet?

If you have some feedback on your own real estate experience, I am happy to read it. Thank you.

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Definitely not.

Intransparent and expensive. Too small as a life insurance, very inefficient as an investment vehicle.

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Why do you have to sign a life insurance 3a product? Is your offer coming from an insurance company? Perhaps you should get an offer from a bank.

My wife and I are also amortizing indirectly via 3a. UBS offers a passive product with acceptable TER.

I’ve done that. However with an uninvested 3a which probably did accumulate some opportunity cost in the last 5 years.
As you figured out do NOT go for the 3a life insurance, that’s some boderline scammy business practise.

Safe bet yes but also rather expensive.

I’ve ended up reevaluating our apartment after 5 years and managed to get a higher evaluation (1.1M instead of 850k) and basically got all amortization payments from the 2nd slice of the mortgage back now (same 680k mortgage but no requirement to amortize anymore).

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Always indirect with 3a, check banks with a good % in stocks and low fees, like UBS with the 100 Passive

Try to pledge your 3rd pillar to reduce the down payment

Withdraw or pledge 2nd pillar

Going with SARON or a fixed is hard to decide, because your risk tolerance, etc.

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My situation:
Indirect amortisation with 3a, 3a X 2 invested in UBS Vita 100 Passive - 0.85% TER, a bit high but better than some active fund.

Pledged previous 3a X 2 (also with UBS) to reduce the cash downpayment required.

Tried to pledge 2nd pillar, unfortunately could not do so as per the terms and conditions of the company 2nd pillar pension plan.

Going with SARON or a fixed depends on the offer and your risk tolerance. In my case, the SARON offer was 0.6% and the fixed was 0.64% for 5 years. We went with fixed on the entire tranche (no split).

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In these volatile times, with the Fed raising interest rates, my personal hunch would be to go with the cheapest fixed-rate mortgage available. But that’s just my hunch. You can compare FRM and SARON published guide rates here:

The reason you will want to avoid using permanent life insurance for indirect amortization is that you will generally be bound to it for a long term. If your situation changes at some point during the insurance term (i.e. you sell the house, leave Switzerland, can’t afford the premiums, etc.) and you have to quit the policy early, you may well lose money because the cash value generally only matches premiums when the policy matures, or shortly before.

That said, if the insurance has a short term and an insurance company requires it in exchange for a fantastically-low mortgage interest rate, you could consider it. Otherwise you’re much more flexible with pillar 3a savings accounts. If the lender accepts 3a funds or asset management (VIAC, etc.), those will likely be more profitable for the kind of longer terms you are looking at with mortgages.

Most pension funds will let you pledge your pillar 2 pension benefits, but it’s up to each pension fund to decide.

In most cantons, the extra cost of indirect amortization is well-compensated by the tax savings, as you can deduct the pillar 3a and pension contributions, plus the interest on your mortgage, plus your pillar 2 and 3a assets don’t count as taxable wealth (whereas equity in a house does). But I would get information from your bank/lender based on the specific taxes in your canton. It might even be beneficial to consult a tax expert who specializes in mortgages/property.

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If there’s no split there would be no need for amortization. Banks are manadated to have the biggest slice of the mortgage not exceed 66% of the valuation of the building. So usually the second tranche is the remaining 14% and that would need to be amortized with the indirect 3a within 15 years.

isn’t the rule that you should have amortised before retirement age?

Not really, you can inherit a mortgage. Extending it w/o regular income is the tricky part.

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Banks using your wealth as virtual income. There is a ratio how they calculate it, just ask them. Remember with Migrosbank it might be 1mio wealth is 90k virtual salary.

Thank you for all your good advise :slight_smile:
So we managed to get 2 new offers without LifeInsurance 3a. But still need to find the best option for us. I find it difficult to compare. I need to make the calculations…

Option A:
2xLPP Pledged
Indirect amortizing on banking 3A. Possibly with returns but we will choose later the products.
Risk insurance Premium (death, invalidity) ~500chf/year
Higher Interest rate

Option B:
2xLPP Pledged
Indirect amortizing on banking 3A.
And Direct Amortizing.
Risk Insurance Premium (death only) ~250chf/year
But if we go for a 3a in funds, they take into account only 70% of the payments. Consequently, we have to increase the direct amortizing proportionally.
Lower interest rate

The difference in interest rate is approx. 0.2-0.25%

UBS quoted me 2-3% (20-30k virtual salary). Has anyone confirmed the above with Migrosbank as it sounds like an amazing offer

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To @K-CD

Try UBS with indirect 3a amortization that can be invested in their OKish 3a fund.

My question is for affordability not amortisation. If Migrosbank count 9% of NW as income it would be a game changer however it seems too good to be true.

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If you want a death/disability insurance, take one separately. It is not a bad idea. But ones there is an insurance linked to other financial products, it starts to stink to the sky for everyone who have spent long enough time in this forum.

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Nope. 15years to get to 66% of value of the property. Then no obligation to amortise at all.

Édit: I guess the obligation to amortise is actually also relative to respecting your mortgage capacity as well but I took that as a given (typically 33% of your salary considering 4-5% interest and 1% costs)

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I think that this is in general correct (especially about % to pay back in 15years) but I think the tranches and the “rang” are different but could be wrong. @Cortana ?

What I understood was that above 80%, the mortgage is 2ieme rang and below 1er rang which I think impacts how the bank stands in case of bankruptcy or having priority to protect their investment in you.

The tranches i understand to simply be a bank construct to a) « spread risk for the consumer to renegotiate over several periods » but it’s really b) to tie you into that bank since you can’t leave them when you have other tranches open and not négociable at the same time (or even same date as I found out)

I may be wrong on the « fond » but the « forme » of the tranches is this so best to keep as 1 or max 2 that you get rid of asap to gain back négociation power.

Then this is another datapoint piling up to the evidence that my bank-person was rather ignorant. He clearly said to me that the 66% should be reached by retirement age.

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I’m no expert but maybe they are less strict on applying the 15years? Maybe it’s changed and used to be retirement? All I know is I’m 100% sure that the 15year rule is applied by my bank. But there, I also had to correct my banker who thought it was 66% of the loan value rather than the property value. :sweat_smile:

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