Low revenue, high wealth. Get a mortgage with minimum down payment

I guess it’s a recuring question among FIRE, once you retire ou get fully self-employed/independent as side income and live on your investment. Your income might be low or zero but your wealth quite high with good returns.

In this scenario, how would you buy a house/appartement without blocking all your asset in it?
It would the primary residence and something that is really hard to find as rental or at a very high rental price, not worth the rental option.

For example, you have more than 1MCHF in cash, stock, crypto and others assets that might have a long term average return above the mortgage rate (let’s say 1% as an easy example).
You want to buy a 1MCHF real estate for living in it and put only the minimum down payment of 200kCHF, to keep the 800k invested with better return and only sell the bare minimum of your asset.
But to get a 800k mortgage your would need 180kCHF of income and you have let’s say 100k (you get this as a couple and one or both working either as as independent or part time).

What would be your best solution?

Solution is buying when you still work. If you can afford not paying the downpayment.
Pledge your assets 2nd and 3rd pillar preferably, a little bit of stocks with Lombard loan if needed

Fix your rate for 10y.
In 10y your home should be 15% more expensive for the bank (at least normally)
Your wealth should have increased, the bank could but would not force you to sell then I guess. Risk exists but is limited.

@gravel I have a similar question to the original poster. Rather then do a 10 year fix, could you simply go for a SARON mortgage? I guess then it keeps on rolling-over indefinitely without the need to go back and re-negotiate with the bank after a fixed 10 year period for example.

I´m on SARON now, and wonder if/when I quit my job will I be forced by the bank to sell my property?

Well you are supposed to them your situation have changed when you quit your job. But otherwise how could the bank know if your salary didn’t arrive by them?

Having a Saron without fixed contract might be OK as it could last forever normally. Anyway if it’s a really low margin bank could cancel the contract to increase their margin so the risk is not 0.
It’s not common but not impossible. If the RE prices around your place drops the bank might be also re-check your loan.

It’s really borderline but if you live below your means, have a modest mortgage and have plan B I think it’s a playable game but riskier than with a 10 or 15y fixed

The bank actually asks for your tax reports, well that was at least in my case.

When do they ask for the tax reports?

When you renew. They are not supposed to ask each year!

When I initially setup the mortgage and I believe when you renew too.

Makes sense! And so, if you are on a SARON where you don´t need to renew - then in theory the bank shouldn´t need to ask your tax report?

Some SARONs don’t have an indefinite term, but also need renewing e.g. every 10 years.

Thanks for the answers. As I understood, there is no real solution beside starting while the income is high and trying to hide the situation when there is a lower income later.
The risk is not that they force you to sell, but that they don’t renew and force you to buy the house back as you have enough to do it, or at least renew with a lower mortgage forcing you to put more down payment later on, which might not be the worst if your investement performed well during these 10 years already.

It’s kind of strange that you can not somehow lock your stock in a special account as a second warranty, the house is already the first garantee and chances that the real estate will worth more (in Switzerland) is pretty high, at least the risk that it drop more than 20% in value is super low. On top of that if you lock like 500kCHF of VT ETF or even some BTC as a second warranty, would make such lending almost zero risk for the lender. Real estate market would need to crash > 20% AND stock market > 50% AND the borrower would need to have no other cash, stock, crypto to sell (outside of the ones locked in the contract) to default on the lender.

It would be similar as locking and reimbursing to a 3a VIAC 100% stock, isn’t it?

Why no institution offer that?

So double-checking my contract states:

image

@PhilMongoose I guess my translation is that in fact I have a 25 year contract, but since I am on SARON product it’s really only valid for only 2 years?..

How would you read this? Thank you!

(at the time of taking the mortgage we were just happy to get it all sorted on SARON, I didn’t really consider too heavily at the time the consequence of low-income / high net worth → FIRE).

You anyway need to amortize to around 65%. I think some institutions may allow you to lock stocks away, but I’m not sure what discount they would require. I guess they need to allow for stocks to drop, say, 50%.

SARON would be valid for 25y, the 2y is only for fixed interest rate.

You mean for the bank margin?

“Les Tranches a taux d’interet variable sont de duree indeterminee”, this is a SARON loan, so this is variable interest rate and doesn’t have an end date (besides the contract end date).

Any idea who offer that?

Okay, so the SARON is for 25 years, and the 0.8% margin is valid for two years. Got it! Hopefully they won’t ask me to show my tax return every two years.

I’m guessing (hoping) that the rate just rolls over automatically. At least that’s what has happened following the first two year period.

Thank you for your help!

No, I don’t see anything saying that the margin can change. (the margin is not the interest rate, the 2y is for interest rates)

edit: actually you should double check, it also says that the rates based on an index are valid for the duration specified in the product.

Indeed, yeah I think it’s the 0.80% margin that’s in fact fixed only for the two years