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:
- 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.
- The moment the key is in my hand, I then start the real mortgage shopping process with a broker or directly with other banks.
- 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.