Mortgage Strategy for Construction + Indirect vs Direct - Advice Needed

I. Strategy for Flipping Construction into Mortgage

My wife and I have a construction that is due for completion end of April. We currently have a construction loan with UBS at 3.5%.

I just spoke to a broker from Comparis who told me that no bank will offer me a mortgage at this point because we are in a construction phase. (or they offer with a higher rate as penalty). I don’t think this is completely true because we are discussing with BCGE at the moment… maybe just an issue for a broker.

So my strategy is this:

  1. Ask UBS to flip me over to a SARON that has a 3-month term, already saving me the difference between the construction interest and UBS Saron. I know UBS is not even close to competitive with their margins so my goal is to leave them as soon as possible.
  2. The moment the key is in my hand, I then start the real mortgage shopping process with a broker or directly with other banks.
  3. Sign try to sign for a margin rate around 0.6%.

Does anyone see any problems or issues with this?

II. The next question is Direct or Indirect Amortisation.

here are my 15 year simulations:

Cost of home 997’000.00 CHF
15 Year Amortisation Target 664’660.02 CHF
Cash deposited 216’000.00 CHF
Mortgage 781’000.00 CHF
Total to Amortise 116’339.98 CHF
Average Mortgage rate 1.50%
Average Market Returns 5.00%
Average Tax Rate 30.00%
Direct Amortisation Indirect Amortisation
Total to amortise 116’339.98 CHF 116’339.98 CHF
Amortised into the mortgage directly 7’756.00 CHF - CHF
Amortised per year into a non-invested 3a - CHF 7’756.00 CHF
Amount going to our own invested 3a (VIAC) 14’000.00 CHF 6’244.00 CHF
Extra monthly going to Degiro - CHF 7’756.00 CHF
Total interest paid for mortage 163’509.30 CHF 175’725.00 CHF
Tax savings from interest deduction 49’052.79 CHF 52’717.50 CHF
Extra yeild from invested 3a (where we want VIAC) +5% 92’099.89 CHF 41’076.56 CHF
Degiro profit at 5% - CHF 51’023.33 CHF
Total Cost 22’356.62 CHF 30’907.61 CHF

I know there is a lot of factors not included here that could differ over 15 years. (changing tax rates etc).

No matter what I do to change the market returns, tax rate, or mortgage rate, direct always seems to win.

For me, Indirect seems to only help in the scenario of people who do not methodically max out 3rd pillar anyway. For people who max 3a regardless - the interest deduction from tax savings of indirect doesn’t seem to compete with the interest cost reductions of direct. If I manage to find a provider that lets me invest the indirect amortisation into the market for 5% then only in that scenario, it wins - at whatever the difference between the market and the mortgage rate is.

I think where you can have the difference is that in case of indirect amortization you can have all 14K contribution to 3a invested (for example, if you take mortgage from VIAC) where return can be a bit less than 5% but still higher than interest rate.

the bigger difference between 3a return and interest rate the bigger will be the profit, of course there is a risk as well for the case when market under performs and you need to add extra to cover the expected amount for amortization

one extra thing is that with indirect amortization your wealth tax should be a bit smaller

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Thanks noname - yeh that is what I’m hoping for but I know many 3a indirect providers dont have an investment product for the 3a - at least not to the level of choice VAIC does.

I’m hoping wealth tax wont be a concern for many years since the value of the mortgage debt cancels out the value of all my assets.