Is 80% downpayment a good idea when buying a house?

Let’s say if you have the money, is it a good idea to do a down payment of 80% for a house and only get a 20% credit? So basically just have the credit, so I can pay less tax.

Also in case credit rates start to rise significantly in the future it might be a good idea to just pay off the remaining 20% (lets assume I have the money for it). Can I do that? Would a bank agree to just accept the remaining of the 20% as a one time payment?

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It’s a good idea if you think that you would not get higher interest if you invest the extra downpayment in stocks or other investments.
Paying everything just gives you higher wealth tax and no diversification.

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I thought I pay 10% less wealth tax on real estate.

For me, I would keep the down payment as little as possible:

  • The interests you pay on mortgages is historically very low. E.g. <1% for 10 years
  • The chances are high, that investments with even diversified risks (e.g. index funds) are going to deliver more than 1% annualized during 10 years
  • Mortgage payments are deductible from (income) tax

… I guess, there is no impact on paying tax on “Eigenmietwert” (you are to pay it in any case).

If you heavily overpay the house (price >>> “official price” (amtlicher Wert)), you can save on some wealth tax, as you are actually “burning” your wealth. Other than that, I see no effect on wealth taxes (in one case you own more of the house, in the other case, you keep cash / other assets)

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this. I don’t see other advantages indeed.

Option 1) Put 80% cash into the house. Pay mortgage on remaining 20% at 1.5% interest
Option 2) Put 20% cash into the house. Pay mortgage on remaining 80% at 1.5% interest. Invest 60% of the value of the house in the stock market for 30 years and expect to earn long term average 6-7%

Option 2) is a bet that the return on stocks will be higher than interest rates. Option 1) has lower exposure to interest rates but is not risk free as you miss out on the potential growth of the stock market

The tax value of the real estate will be the same regardless of the size of your mortgage

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So what happens if that 1.5% interest changes to 5%?
Instead of paying something like 800 CHF a month, I will need to pay more than 2600CHF per month and meanwhile the stock market just goes down due to the high interest rates. That is what I am afraid of.

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I am with you on that thing. Of course someone can leverage the shit out to stay invested in the market. However this means risk.

If you are risk averse, buy the house with the highest possible capital, pay down the house as quick as possible and the restart investing.

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Normally I would not think of rising rates but if you check how food prices are soaring, dollar got devalued, new 1.9T stimulus got approved. Maybe there is a bigger chance now for some higher inflation. Of course now one can anticipate how long it will last if we get there.

My idea is that I would be sleeping better with a 200K credit instead of a 800K credit.

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In a scenario where interest rates go to 5% and the stock market goes down due to interest rates, the impact on house prices isn’t going to be pretty either

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… then I would re-evaluate the situation once a new mortgage is due (e.g. in 10 years)

When re-evaluating the situation: Can I just tell the bank that I would like to pay off the remaining mortgage all at once?

Having 800k than 200k mortgage may be better in the environment of high inflation. If you fix your interest rate, at the time when your mortgage is due, those 800k may mean nothing ;). I think I’ve already described somewhere on this forum, that my parents (in Poland, beginning of 90’s) took the mortgage to build our house and then hyperinflation came…and my dad paid back the mortgage with 2 monthly salaries…

Of course I don’t think that something crazy like this will happen in CH, but this is one of the reason that I’m trying to buy a house now - not to be caught by high inflation with a lot of cash…

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If your mortgage is going to expire: Yes! Actually, you have to pay the full amount on due date or set up a new mortgage with the same / different bank.

If you’d like to terminate a mortgage in advance, then you’d usually have to pay a “penalty” - but why would you, assuming the interests are going to rise…?

And your plan is to pay as less as possilbe for a downpayment?

Then negotiate the “Sonderamortisation” conditions with your bank beforehand. In our case we can amortize up to 20k per calendar year (not negociated at that time)

Actually yes, but the main reason for that is that we want to keep as much cash as possible for the renovation. It is still not finalised, but for the moment we have the idea to:

  1. Pay 10% in cash (legal minimum).
  2. Empty our 2nd and probably 3rd pillars to provide additional 12-13% (not sure how much as we still haven’t confirmed the final price ;)).

Why not just additional 10% from 2nd/3rd pillars? Because we plan to increase the mortgage for the renovation afterwards. Unfortunately it is not possible to do it in one go, as we have no time to prepare renovation project. For doing that we would have to wait at least until May (architects availability) and I’m quite sure that until this time the house will be already gone.

I hope it makes sense ;), but if anyone sees any major flaw in our thinking, please let us know!

Can you please provide more details? Is this amortisation on top of legal requirement that one has to amortise, so the mortgage is not above 66.7% value of the property in 15 years time?

… did you evaluate a “building loan” (“Baukredit”)? That is actually just that: A loan (just for building / renovation) which is then transformed into a mortgage (either at reaching specified thresholds (e.g. slices of 100kCHF) or after a defined period of time)

I mean the maximum amount of an exceptional direct amortisation where your bank does not make you pay a penalty because you amortize quicker than contractually agreed. Not sure about the 13.3% you need to amortize within 15 years though, I guess this “Sonderamortisation” comes on top of your agreed direct or indirect amortization.

In our case it used to be max 50k/calendar year on a previous property (a decade ago)
Recently it changed to max 20k

This was never a negotiation point as we never thought we would need to amortize quickly - now it certainly will! it gives more freedom in case we need to sell the property

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