Wouldn’t switching from mortgage to margin loan just do that, and actually limit your flexibility? Besides, banks can do better than 0.75% and for most people, the majority of their mortgage will be in the 1% bracket.
Not at my age. And then you sometimes pay more and sometimes less, it is not exactly fair what the banks do. IB does calculate the interest every day, if it rises worse and if it goes down better than the banks. But then the banks ask for a lot of months if you want to pay back, at IB you just do it. In theory you could pay it back every evening and take it out every morning without even paying interest. (I think, would never do that, some day traders told me).
It is not so much about paying a few cents more or less, it is about flexibility.
Switching the collateral from real estate to stocks is no big difference for me, as total debt is less than 15%. Right side of my balance sheet:
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I keep a mortgage to make best use of the collateral.
Unless IBKR accept my home as collateral for the stock portfolio, the capacity will be ‘wasted’.
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If I wanted to get a margin loan of the value of my mortgage and keep the LTV at 20 %, I’d need assets of around 4M CHF.
How rich are you if I may ask?
Edit : Ah shoot, you already answered it…
My mortgage is way lower and I have portfolio margin, which is around 12.5% or in other words a multiplier of 8. I would never do that, not with stocks, not with real estate. Everybody agrees when it is about stocks, but with real estate people do just this.
In other words, with assets of 4M CHF you could finance >28 M of debt. Do you really have such a high mortgage?
You always need to manage debt, it is part of the money management. And exactly there a margin credit at IB is way better; you cannot sell a single room of your house, but you can sell part of your stocks to maintain your target margin multiplier!
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Could you elaborate why not using this strategy for the mortgage? Or at least not take the full mortgage with this strategy but only a part of it to reduce the interest rate? From what I understand whit box spreads you are very close to the SNB interest rate and lower as for Saron (Saron margin).
Afaiu, you have no guarantee not to be margin called in case of market stress (or just a bug on IB side where they mess up computing margin req), also the loans are fairly short term and need to be rolled over continuously (and you depend on counterparty taking the other side of your legs each time).
While a mortgage it’s very clear what the collateral is and odds of ending up in a messy situation is very low.
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I have now completed my comparison round, and the best offer I obtained is 1.2% for a 7-year term.
The condition is to pledge my VIAC 3rd pillar as collateral and make fixed payments into a second 3a account. I was able to get approval to make these payments with Finpension.
This seems like a good deal for an amount of approximately 600k CHF. What do you think? Is there anything I’m missing?
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ZKB shows 7 years swap in CHF at 0.3325%, so while your margin is at 0.87%, kind of very good nowadays, the amortization is basically for free - you would do the same investments anyway.
On the other hand, you pay interest on the whole amount, while the inefficient amortization affects only the amount you have paid back, and only from the payment until the end of the mortgage, as afterwards the game starts again. So it could be that better interest and worse amortization conditions would actually work better in the end.
What does the last line mean? you have VIAC/WIR mortgage and your indirect amortisation goes from your existing Finpension 3a to VIAC 3a?
If that is the correct interpretation, can you transfer a part of Finpension 3a to VIAC? Or you already have 7 different portfolios on Finpension to transfer 1 a year to VIAC?
Thank you for the analysis. I appreciate the technical breakdown on the swap rate and margin.
To clarify my situation: I would max out my 3a contributions in both scenarios.
So the tax benefits and investment returns are identical regardless of which option I choose.
The real comparison is:
Option A - pension fund (1.2% with mandatory indirect amortization):
- Total interest over 7 years: 46.8k CHF
- 3a pledged as collateral
- Progressive drawdown: 450k → 600k in 3 tranches of 50k (released against invoices for energy renovations)
Option B - the biggest bank (1.35% with no amortization requirement):
- Total interest over 7 years: 56.7k CHF
- 3a remains free/accessible
- Full 600k available immediately
So the effective question is: is keeping my 3a unpledged worth the 9.9k CHF difference (~1.4k/year)?
Given that:
- The progressive drawdown aligns with my construction timeline
- I have no immediate plans requiring 3a withdrawal
- The 150k funds energy-efficient renovations that increase property value
The 1.2% option still appears to be the better deal. Do you see any flaw in this reasoning, or scenarios where the added flexibility of Option B would justify the higher cost?”
I am just letters on your screen, and have no skin in the game, but:
- if you want to play safer and considering who the lenders are, go for the option A.
- you might think about borrowing more and invest “excess” money, but it is not clear to me what is the situation with these renovations. Do you have to do renovations during the next few years?
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We have finally signed the mortgage papers and also the house!
Mustachian post helped me a lot on the mortgage, hence I am sharing here the term we got - I am honestly quite surprised on the flexibility that the banks have.
Mortgage Bank: UBS
Property value: CHF 1,240,000 and no renovations
Downpayment: CHF 5000 cash + CHF 62,000 2nd Pillar (5.4%)
Pledge (Pillar 3a): CHF 116,500 (9.3%) - Moved from VIAC to UBS 4key (a cheaper version of UBS 3a still expensive than VIAC)
Total mortgage: CHF 1,173,000 (Loan-to-Value ratio = 94.5%) with indirect amortization - so my LTV will remain at 94.5% forever until I decide to pay it back.
Affordability: 44% (Never thought this was even possible)
I could also negotiate the interest rates
SARON margin - 0.7% for an unlimited term (For now, we will be having all our mortgages in SARON)
Fixed 5 years - 0.95%
Fixed 10 years - 1.33%
SARON Terms
- SARON margin would be 0.7% for an unlimited term.
- No penalty for moving to fixed mortgage
- No penalty for the closure if the notice period of 13 months is given.
NOTE 1: I could get such terms after about 5-6 rounds of negotiations, and I had to show them that we have bankable assets more than CHF 300,000 (without including pillar 2a and pillar 3a). These assets are neither pledged nor transferred to UBS.
NOTE 2: I was pushing for low downpayment not because I am not capable, but to have highest ROI on the investment. In another view, I want lowest downpayment as I can treat the remaining as a personal loan to start my business (if I ever start).
NOTE 3: I negotiated the terms directly with the Banks (without having any intermediate brokers)
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I like the concept, but banks give a margin rate of 0.7% (instead of 1.5% in IBKR). There might be a slight time lag between the Bank’s SARON rate and IBKR Benchmark rate, but it should be similar.
Hence, in my view, I will keep the bank’s mortgage as it is, and when I need more debt, I can get it from IBKR.
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May I ask you in where area is it?
These are excellent conditions congratulations.
The house is located in about 10 min biking distance from Olten train station. We love Olten because we love public transport, and we can go to Zurich, Bern, Luzern, and Basel in about 30 mins.
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Do you think the bankable assets allows for affordability to increase? I wonder what formula is used…
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Yes. I’ve tried to get a mortgage twice in Switzerland.
First time, the bank ultimately refused and in subtle diplomatic terms it became clear this was because of prior bad experiences with the promoter selling the new project. I was able to get out of the reservation intact because the promoter had come with an absurd purchase contract. Later, as the project progressed, it became clear in the media what a disaster it was.
Second time, there was no issue from that side and in fact the bank offered to increase the mortgage much higher than we wanted (thus also: low to zero of our own assets). We chose not to do so and rather play it conservative and go in with 30% of our own funds + some additional amoritzation the first years. We just were not comfortable with a very large mortgage and the risk of a market crush wiping out our stock portfolio.
Be careful with maxing yourself out.. do the math in terms of what happens if things go south somehow (interest rate increase, job loss, market crash, etc.)
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Any links?
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Thanks for sharing.
Wow, very impressive! Also the SARON rate is great.
I guess the only small downside is the more expensive 3a, which will cost you a little bit every year. But all in all a super package.
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