Mortgage rates in Switzerland

With a higher mortgage interest rate, your taxes are reduced by the marginal tax rate multiplied by the increase in interest. However, the marginal tax rate is always a lot less than 100%, so it doesn’t make sense to pay a higher mortgage interest rate just to save taxes.

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I don’t expect the interest environment to change to much, but personally I would still go with the 10-year fixed-rate mortgage because I like being able to plan ahead.

I’ve seen 10-year FRM rates of 0.75% at pension funds (the Bernische Lehrerversicherungskasse, in this case). So I would definitely recommend shopping around a bit more because you will be tied in for 10 years and the small difference can add up to a lot.

If you prefer a bank, Avantage Service (BCGE) quotes its lowest 10-year FRM at 0.84%, and that’s the lowest available as per this comparison (which does not include pension funds):

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I agree that in general is better a lower interest rate, but it also depends.
If renting the house would be 3k/month and let’s say they calculate 60% of it (valore locativo), that’s CHF 21600 per year.
If the interest you have to pay to the bank are lower than that, then your total income will increase, with the result of paying more taxes

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If the interest rate is lower, you always pay less in total (bank + taxes). I.e. assuming everything else is the same, a lower interest rate is always better, independent of your tax bracket. Or am I missing something?

If your interest and other deductible expenses amount to less than the taxed rental value, you pay more taxes than if you didn’t own any real estate at all. This may be interesting e.g. when comparing the cost of owning real estate vs. renting. However, it’s irrelevant if you’ve already decided that you want to buy a particular real estate object and are just shopping for mortgages.

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Exactly

True :slight_smile:

Before 2008 it went to 3% and in 2000 was even more.
Do you think it’s not going to happen another big crash market in the next 10 years?
This kind of economy is not sustainable forever. I don’t think the S&P ATH for so many years and the huge American debt + trillions in stimulus, are healthy.

@Cortana Changing slightly subject, is in your opinion indirect amortisation with UBS (Vita invest 100 World) still a better option than direct amortisation and use Viac/FinPension?

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Thank you! Finally we picked the 100 Passive Q

The last decision is 0.6% SARON vs 0.8% fixed for 8 years. I have the feeling that SARON is, in theory better, but what if it goes up…

Probably I need to read about the topic. Do you guys know what would make SARON to go up or how to start researching about it?

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It’s linked to the SNB rate (currently -0.75%).

Btw I spoke to my boss, who knows the mortgage business quite well, and he said that if you take a 10y fixed mortgage, you should be able to get 0.7% or even 0.6% if you negotiate well. And my other friend said he was even offered 0.35% for 7 years.

Do you think we could ever see negative mortgage interest rates? What other scenario can you imagine where a near-zero rated fixed mortgage would “backfire” or simply prove to be a bad financial decision? I can only see 3 scenarios. Admittedly, all seemingly absurd:

  • the real estate market crashes and the value of your house drop significantly
  • the mortgage rates go even lower, into negative
  • we witness deflation, prices & wages going down, making your mortgage worth more
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I guess that’s depends also on your affordability and your wealth. Those interest rates are too low in my case.

Checking the interest rates forecast (below), they look interest rates will go up (not SARON). Why not SARON and only the fixed? Does it means it’s better to secure a low rate for 8 years at 0.8%?

We can handle the market fluctuations and we have a good saving rate, but still not sure what to do

You can‘t predict the future. AFAIK in the past SARON or Libor ended always cheaper

How do you know they were cheaper? Do you know where to check historical data comparing saron vs fixed?

Fixed rate mortgages are like insurance. You pay for security. It will always be more expensive than Libor/Saron.

If you are able to take the risk of being invested in the stock market, you should always go with Saron IMO.

I disagree with this analogy. The fixed rate loan insures you against variable monthly cost. There is no such risk with holding stock. It’s more like buying FX options to hedge currency risk (e.g. you’re a company that makes sales in foreign currency, but pays salaries in the local currency). Or like taking health insurance. You wouldn’t say something like “if you’re a healthy guy, it doesn’t make sense to get health insurance”.

I would say, it only makes sense not to take insurance if you’re rich enough to cover whatever losses might occur and if it would not “kill” you financially. Otherwise, you’re making a gamble. Of course, with the fixed rate the bank charges a premium.

If you get a fixed rate of 0.6%, then how much room is there for SARON to go even lower? I asked if a mortgage rate can go negative. But on the other hand, the possible rise to 3 or 5% is not out of question.

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When you need to pick the mortgage, yes SARON is always cheaper. But at the moment it won’t go down, the 0.6% it’s the minimum, is the margin of the bank, isn’t it? it can only go up. Why you say it’s always cheaper? Long term as well?

4 years at 0.6% and then another 4 years at 1% will be the same than 8 years at 0.8% (indirect amortization). Chances that it goes up more than 1% during the next 8 years? Maybe high? Of course, nobody knows, but it’s very low now

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Nowadays, the interest rate curve is incredibly flat - a 10y fixed mortgage is not more expensive than a 6y fixed or a Saron mortgage. You can choose to be able to plan for the next 10y or to take an option, where the interest rates could rise in the next years. Always depending, what you are expecting.

When I worked at the bank couple of years ago, the interest yield curve was linear. Nowadays it even makes no sense to split up the mortgage in different terms, because the average cost effect is too low. Of course, if you have a clear exit strategy, split up your mortgage. But this is another topic.

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Could still go down to 0%. Sounds crazy now, but we’ll see.

All this talk is similiar to the “Valuations of stocks are so high, they can only go down from here, so I’m waiting for the crash to invest”.

I’m not saying that you’ll end up paying less interest with Saron in the next 10 years. But you will for sure over the next 20-40 years.

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What do you mean :blush:
I got just 0.02% discount and they mentioned that usually you get just what they offer if you don’t complain

I would do more calculation before go with that offer…of course if you think that we won’t have inflation, it could be a good deal

What’s the advantage of the bank then?

I got some informations from people who had mortgages the past 25 years, and some friends in banking confirmed it.

Since I got an offer für 0.5 SARON I am looking for arguments to negotiate. For that reason I tried to estimate the banks profit for SARON vs 8 yrs. Are these thoughts correct?:

The banks profit is: (interest rate paid by client) - (interest rate to pay by the bank for refinancing).

I make 2 examples (source for refinancing cost: VZ Finanzportal - VZ VermögensZentrum)

SARON @ 0.5%

(0.5%) - (-0.73%) = 1.23%

UBS 8yr @ 0.8%

(0.8%) - (-0.17%) = 0.97%

The bank gets 0.26% more profit when selling a 8yrs mortgage, if SARON doesnt move for 8 years.

How much do you estimate the SNB Leitzins to climb in the next year?