I was happy to fix at 1.5% for sure, I could see rates going lower and SNB cutting to negative again.
But:
1.5% is still a good rate and it is locked in for 10 years at a time of considerable uncertainty
The amount outstanding is low so even a 0.75% difference isn’t a huge deal
My other 10 year mortgage comes due in 5 years, so fixing now gives the maximum overlap in case of rate volatility (though I hope I might get lucky and I can renew that more substantial 10 year mortgage at new interest rate lows)
I would personally secure it at 1.25% now if that sounds tempting to you (without knowing all your details).
If you wait until December, I doubt you will see a substantial drop in the fixed rates even if the SARON, because it’s pretty much already been telegraphed by the SNB that they will drop the policy rate (so it’s already priced in, in my opinion).
I suppose another question to ask yourself:
If you secure 10y 1.25% and it goes down to 1.00%
OR
If you don’t secure and the 10y moves to 1.5%
Which one would make you more upset?
Because it’s not easy to “time the bottom”, you just have to go with what you are willing to accept.
Also if you stick with SARON -
Consider the scenario where we get negative rates, with SARON you will still likely pay at minimum 0.6% to 0.8% in margin. And what probability do you assign to that lasting 10 years. Also factor in whether or not you want the flexibility to amortize (via SARON) or if you plan on continuing to renew and keep the debt ongoing.
Yup. The way I look at it, my mortgage rate can maybe go down to around 0.75% at best and worst case is theoretically unlimited, but even in the last two years they reached 3%. So if my interest is 1000 per month at 1.5%. Then I could hang on to save 500 per month but risk it going up by 1000 per month or more.
That said, the trend certainly seems to be down so I will be paying a price to avoid interest rate risk.
To me a lot of recent discussion on the thread seems like timing the mortgage market.
I think there are only two logical options
You want fixed rate for peace of mind. Get the lowest you can at the time you need mortgage and have the peace of mind
You want to always have market rates , then Saron is best and in fact in long run Saron will always win (on average). But it wins because it involves the risk of interest rates changes
I think it’s not really possible to have best of both worlds (no interest rate risk and lowest mortgage rate at all times)
I am more or less certain that whatever rate you lock in, you will find a reason to regret in few years and also a reason to celebrate in few years. On of them will happen first and we wouldn’t know which one
I often heard the statement that market has already priced in the SNB cut on December, and/or UBS, CS, SNB cannot predict the market either. I wonder how can we participate in the market? How can we trade the 10y swap rate, directly making or losing money on the rate change? Is there a future for this number, or what is the vehicle? What’s the minimum unit?
You can either go long 10 year bond futures (with various amounts of leverage) or short.
But that‘s essentially gambling. Especially short-term.
The only thing working on average is trend following them with moving averages etc. Meaning going long when they have gone up in X time and are over Y average or the inverse going short, when they have been going down.
But doing something like that with a single asset is very very risky and can easily blow up in your face, as well as not working for years, where you got to stick to your gameplan.
The poor mans and less risky trend following, would just be switching between cash and 10 year bonds. But your returns are going to be quite low.
Hi all - long time reader of the forum and MP blog - has played a key role is my ability to afford this mortgage. I wanted to share my mortgage strategy and get your opinion on the same:
Maximise mortgage amount as net interest rate post tax would be ~1% and invest surplus cash in VT IB
Try to include 5% transfer taxes in mortgage itself
Sequence for 20% assets: Withdraw Pillar 2 (~7% of mortgage, not pledge, even with withdrawal tax better than perennial low returns) → Pledge Finpension 3a (~7% of mortgage) → Withdraw Finpension 3a if pledge not feasible → Cash (VT IB,~13% of mortgage) as last resort
One trache; SARON margin (max duration available) as can afford the risk
Prefer VIAC (and transfer finpension 3a) or any other financial institution willing to take Finpension as pledge (unlikely); indirect amortization only with VIAC
Obtain 2/3 banks directly and rest all through multiple online brokers even if there is some duplication
Please correct / challenge / comment on above. Thanks
Interest rate affordability is tested to 5% - beyond that it would be an issue.
Stock price fall - post mortgage - would only impact the 3a pledge portion. I should have spare cash to cover till 33% of potential VT fall. So 5% interest rate / 33% VT downside would be my limits.
Have added the asset %s - clear on the 10%+10% rule.
Very interesting point on the 2nd pillar rate. In my head - I am comparing 2a interest rate to the VT long term return rate as using pillar 2 would free up “cash” for me to invest in VT. Even if I were to pledge 2nd pillar - the amortisation would slowly go from my “cash” which can only be avoided by withdrawal. Just to add - ~25 years to go till retirement age.
It seems to be headed back to zero territory, but I fixed now anyway. Rates are good enough and I want to avoid the risk of any unexpected event lifting rates up again.
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