New on this forum but better late than never. One of our hypotheque will be due later this year and I am confused on how to best deal with it. Coming from a country in which we want to amortize quickly hypotheque.
We bought home here in Switzerland in 2018 for CHF 1 400 000 plus CHF 60 000 for parkings. The best hypotheque offer we had was with UBS. We went for fixed rates with following scheme
a. CHF 140 000 at 0.76% with maturity in 2021
b. CHF 195 000 at 0.83% with maturity in 2023 (amortization through 3a with UBS invested in UBS Vita World and Swiss at 50% each)
c. CHF 885 000 at 1.27% with maturity in 2028 (no amortization)
UBS pledged my second pillar and we used our savings.
We are not use to keep hypotheque going and we were happy to repay the CHF 150 000 in 2021 while UBS wanted us to extend it.
My question is now for the hypotheque becoming mature this year. We would be able to repay it full with current savings (not invested) but it would leave us with equivalent of 5 to 6 months expenses in current savings.
Before getting in touch with UBS to see what could be done, I would really appreciate to get some input. Also I would like to get my second pillar unpledged. I already asked when it will be unpledged but only got a vague answer that they will reassess later.
Solution 1: We reduce our hypotheque this year. We have less savings. No real impact on taxes with CHF 1K less interest to deduct. We save again to be able to refinance my first rank (CHF 885k) in 5 years with lower first rank. Apartment ownership will be more to us than to UBS.
Solution 2: We partially reimburse our hypotheque let’s say 95k . We have 100k more savings and with current interest rate we would have CHF1k more to pay and to deduct from tax. We invest the 100k and in 5 years we desinvest them to repay. We also save again to be able to refinance my first rank (CHF 885k) in 5 years with lower first rank. Apartment ownership will be more to us than to UBS.
So i am confused because I do not see a clear advantage for either solution. First one, we amortize quicker and have less money to invest. Second one, we do not amortize much, we pay more interests (deductible from tax) and we have more to invest but in a 5y timeframe which seems short to make a profit on the investment (VT).
For the pledge, it is just that I personally do not like to have things pledged when not necessary. When interest rates go back lower, real estate investment for rental coudl become a project and my second pillar could not be pledged.
No, it doesn’t work like this. If you invest in stocks now, you should keep your investments running. You can accumulate new savings, though, if it helps.
You can also look at it from the assets allocation point of view. Right now you have around 320k net invested in your apartment. Probably more considering the appreciation of its value. If you repay the mortgage, your net investment in the apartment increases. So, how much of your net worth do you want to invest in one single apartment? 50%? 70%? And if you look at gross numbers, it should look much worse.
Remember, there is no free lunch in investment, except of diversification.
If you decide to keep to ending mortage I suggest you renew it with a date that ends the same date as your first rang. UBS probably wont like it and provide better rates for mortages ending few years after.
Just to add my two cents. I have the impression that this is important to you, but I would like to make you aware of the fact that, as long as the object has not been 100% amortized, the bank does not care at all about “what is yours”.
The equation is simple. As long as you pay off your mortgage interest, the bank is happy. If you can’t pay it off and you are REALLY in trouble (from a financial point of view), the bank can seize the property and auction it off to get their share, no matter how small.
Either this activates some kind of paranoia and you will want to pay off your mortgage as fast as possible, or you have to get it out of your head that “the apartment will belong to you more than to XY”.
I am the breadwinner. Therefore I used the blow to protect my family:
a) I subscribed into a 15 years term life insurance for 30% value of my mortgage - if I die tomorrow my wife would could use the money to bring LTV to <50% where she will only need to pay interests and no required to pay capital back
b) my savings and pension funds will pay her another 30% of mortgage value - but better to keep as cash buffer
c) my pension fund will pay her yearly way more than enough money (double) for her to pay mortgage capital repayments, mortgage interests, service charges
She also works full time so I am at times concerned by the large mortgage but I am protected from different angles
Ps i also signed up 7 year fixed mortgage so no risk of short term movements or risks
Moreorless: Your mortgage must be a max of 66% of the value of the house within 15years or at retirement (whichever is first).
UBS wants you to have « tranches » to break up the mortgage so that you can’t leave them. Banks will only really negotiate/take over a mortgage if it’s for the full mortgage. While yes you can feel that splitting it up spreads the risk out for you it is more in the favour of the bank in my opinion.
The bank will only let you group tranches and/or pay them back at the moment their due to expire (with the option to anticipate the negociation but not the date it’s effective). So I’d recommend asking in 2023 for a duration allowing you to group back your remaining tranches together as you will probably amortise down to 66% quickly at the rate you’re going. At or less 66% of the value, only interest is mandatory and also from the sounds of it, you’d probably be able to free up the gage on your pension (as long as your income meets the requirements for the risk on the remaining debt)
Hope this helps and open to comments from others if I’m not precise in my explanation.
Idem. I’m already at 66% but my family would indeed need to pay back more since they wouldn’t have the income to support the risk on the debt so would indeed need to come down more.