Mortgage Negotiation with 3a Indirect to Free Up for Investments

[JMH]

Hi !

Not sure if its a good idea or not to start a new thread but the one I found closest to my question is 3 years old…so here goes and apologies if too much detail (please merge the thread if I’ve missed one thats close):

Objective: i need to negociate 433k on my mortgage in a few months and I’d appreciate a devil’s advocate (or more) to help challenge my thinking since it will have a big impact on my next few years of investments/taxes.

Background:

• current hypo: 633k CHF
  amortisation indirect via 3A, all invested with bank’s swisscanto funds with crazy rate but only option I have to invest + 3k CHF direct amortisation per year

• current PPE value on mortgage 735k CHF
  PPE was bought from a family member, so i absorbed his mortages (yes pluriel) but which allowed me to negociate 0 CHF downpayment since the bank agreed to consider the « family price reduction » as my 10% cash + my 3a put in « gage » for other 10%.

• the person I had bought it from had split the mortage into 4 tranches (yikes) and the bank wasn’t open to merge then (i didn’t push since I liked the 0 CHF downpayment), but at the next negociation I plan to merge 3 of 4 for 433k of the 633k overall

• the 66% rule for me is latest 2030, with current outstanding amount due 143k. I already have almost 200k in my 3a invested, but the bank won’t release the gage until the 143k is either held in cash or paid back outright - in the meantime, they only consider a 70% factor of value while invested (even on an investment they max at 45% equities)…not that I’ll pay 10 years invested at those rates…

Plan:

• already asked the bank to re-evaluate PPE market value: i think its undervalued which would effectively lower the outstanding amount to reach 66% since higher value, thus releasing my 3a with less taken out and therefore less tax (worst case is 143k and 8k tax)… I think/hope PPE is at least 100k more in value (i think down to 2k tax).

• i sell the whole 3a before the negociations regardless. Its had a decent return but the total costs are simply crazy (1.8-1.9%). I pay back based on new value retained for ppe to get to 66% (including whatever tax due on 3a payment…nothing if valued at 950k)…move the rest to Finpension (not the part I’d like to debate yet )

• my logic: need to do it anyway before 2030, frees up 3k cashflow/year to invest in ETF, frees up 3a to invest 10 years earlier at >2x stocks (45% now) and >4x less costs (start multiple accounts to spread withdrawl), reduction in debt should be ok for wealth tax (TBC) but the interest to reduce marginal rate for taxes I’ll need to compensate…in the end also frees up flexibility for future opportunities / negociations since mortgage less than 66%, and i can merge the last tranche in 2030 to move overall mortgage if i want (my relation with the bank is actually quite good so I don’t want to be dramatic…no issues to stay if rates are good )

• SIDE NOTE: the bank only considers the value of the invested 3A at 70% until its sold and is even giving me a hard time every year when I try to invest the next years 3a contribution ( I don’t understand it, especially at their 0.5% added commission for doing nothing )

This experience has already taught me a few lessons about what not to do next retail investment (that a whole other thread for anyone doing an extension on their house/PPE) but I consider myself luckier than most to have this « problem », so no worries.

Any advice is welcome - apologies again for the text wall.

[MrCheese]

I’m not sure if you can easily convert your 3a to lower your mortgage. I thought you can only take out 3a when you buy a new property. But I guess your bank will know. Valuating stock invested assets at 70% is normal and would also be the case if you just pledge some of your portfolio.

[Cortana]

You can take it out to reduce the mortgage anytime. I would:

• Revaluate the house.
• Reduce the amortization to the minimum.
• Merge those 3 to 1 Saron.

Best thing would be if they value the house at 950k. So you could transfer all your 3a assets to Viac/VP/Frankly and stop the amortization alltogether.

[JMH]

Hey @MrCheese : yeah, every five years for the 3a. Only limit that I know of other than it must be done when renegociating. The 5 year rule on 3a being similar to 2ieme pillier were any funds added are blocked for 3 years I think. So that part is ok… by the way my 2ieme wasn’t touched for this PPE.

Reassuring to know for the 70%…I just find it quite conservative since they also didn’t want to go above the 45% traditional limit for the 3a…no excessive risk since I am currently also under the 33% rule and 5% interest as well for their calculations on income etc.

[JMH]

Hey @Cortana : I am also hoping for the 950k chf to avoid the taxes but even in the worst case, the 3a invested at 1.85% avg Total Cost would literally cost the same as the taxes over 10years, so don’t want to « pay it twice » and miss out on gains over those years.

When you say « reduce to minimum », do you mean use all of my 3a to reduce lower than 66%? If i understood correctly, what is the advantage there? Indirect amortisation whether contractually or « free » via my 3a seems to be the most tax efficient…I am at 30-35% marginal tax rate and while I don’t mind my fair share of taxes, I do like to be as efficient as possible while balancing investing across everything…totally agree to stop amortization at 66% though.

For the Saron: I looked into this before on the Libor. Seems they only accept for higher net values than me (I recall them saying Mortgage above 1M CHF). Good point to reask though…does that seems reasonable about not offering it for 433k CHF?

Lastly, I take advantage since I saw some of your other posts and I think you’ll probably know: since the contract is up on these 3 tranches…and I’ll be paying down the excessive above 66% (officially 2rang even if my rates aren’t different for it), seems most banks won’t want to take over only a partial mortgage in Switzerland…would you agree? So most likely need to wait until 2030 to push harder on negociations. Or if I did find a bank willing to at a better rate, there should be no contractual basis to prevent me from moving the 433k chf or would there be? This is a hypothetical since I do like having the simplicity of the mortgage all together and the current offer today is still under 1.00% so unless the gap is bigger, I won’t change probably…

EDIT: my bad…I re-read…you meant reduce my amortization to zero. Fully agree…sorry, not yet caffeinated.

[Cortana]

Any decent bank will offer you saron mortgage for any amount above 100k. I would try to push them hard on this.

Most banks won’t accept partial mortgages. Usually only if the whole mortgage will be moved within 1.5-2 years. It puts them in a very risky position. Lets assume the following situation:

Bank A (1st): 250k mortgage till 20xx
Bank B (2nd): 400k mortgage

Now if the house gets sold by force, bank A will first cover everything (mortgage and all costs) and bank B will get what’s left. In some cases that won’t be enough to cover the mortgage and they are left with the loss.

So real negotiations will be possible as soon as you could potentially move the mortgage in one step.

[JMH]

Thanks for the insight, hadn’t considered it in that context for the second bank. So looking like earliest hard negociation is in 2030 . Thanks also for the advice on the Saron mortgage…I’ll ask!

Past that I am reassured, so far doesn’t seem that I missed anything major and have a few nice additional points to consider - well appreciated!