[Need for help] Mortgage Condition Comparison

Real Estate
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Hi all,

Here, me again.
Having somehow “solved” or at least better understood other dependencies, now I need to make a decision: which financial institure to select.

Key-Facts: apartment purchase “on paper”. Delivery date November 2023.

In few weeks, I will go to the notary for the so called “promise of payment”, where I will give the 20% of the price together with the letter from the hypo-firm which. I have now 2 options to consider:

A) Insurance Firm. Hypo+3a (life insurance) to get better conditions.
Pros:

  • penalty-free for anticipated exits (e.g. apartment selling)
  • given a due-date for the mortgage start, possibily to anticipate (if aparment is finished early)

Cons:

  • given the due-date for the mortgage start, 0.05% interest applied to each month delayed (e.g. , given insterest rate 1.5%, due-date November 2023, effective release Feb 2024, new rate 1.6%
  • strict affordability calculation (33%, not more)

B) Bank firm. Hypo+3a (without any mandatory option)

  • No penalties in case of release date postponed. Only requested to pay interest by the start of the contract
  • less strict affordability calculation (also 37% may be accepted, under specific conditions)

Cons:

  • no penalty-free for anticipated exits (e.g. apartment selling)
  • no possibility to anticipate the start of the mortgage (in case of apartment ready before the ETA)

To me, it’s stilla 50-50 score. None of those has an elevator picht which can overtake the other. What do you think?

Here I’m not considering the % rates, this dimension is too early to evaluate. But this leads into another consideration.
At this stage, at the notary I need to bring this letter / Zahlungsversprechen which - to my best knowledge - is not fully binding me to that specific financial institute.
Likely there are penalties (someone says 500 CHF, other 2-3K or more), but if next year I will find a solution which could offer 0.5% difference or more (which turns into c.ca 30k CHF, for a fixed 10y mortgage), it’s worth to pay this penalty. Some of you know more about this kind of penalty?

In other words: now I could even go with option A or B indinstinctly (and DO NOT fix any rate), get the Zahlungsversprechen, do the 20% downpayment,* present the letter and next year start to see the % trend and decide the good moment to fix the rate.
If A or B does not offer at that time a very competitive rate, I can call-off, pay the penalties (when required) and search for another institure. Most likely, additional costs are with the notary as this information needs to be registered.

(*) The bank will create a dedicated account where this 20% needs to be deposited and blocked till the date of the payment. Then it will be used to transfer periodically the monthly payments. Will be also the same for the insurance firm?

Thanks for your patience to read all this essay :slight_smile:
Any inputs, always super appreciated.

Best,
Cappuccio

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Hi Cappuccino,

The “no-penalty” clause of Swiss Life (insurance firm A) is a nice add on, if you are selling your property during the mortgage lifetime to a third party. To be honest, the no-penalty clause is pretty neat, but there is more than one way to Rome:

If you are selling your property you can make it a condition, that the buyer has to take over the mortgage (of course Swiss Life has the last word, since the buyer has to pass their calculations and affordabilities. If the buyer does not want to take over the mortgage, you can calculate the penalty by Swiss Life (remaining time frame * (interest rate + refinancing rates)) and increase the purchase price by the penalty. Or you are swithing to another residence, then try to take the mortgage along with you. Also in this case, Swiss Life has the last word (the property has to match with their internal criterias).

From my experience - I work at a big mortgage brokerage - Swiss Life is going to be much more expensive and they do not have the need to get and close every case. It is a “take it or leave it” mentality, actually.

Therefore, the bank you mentioned will probably be more cheaper. It is not hard to beat Swiss Life, tbh :slight_smile:

Moreover, with the current situation of constructing couple of materials are not very good available. This means, that the probabiliy for a delay (and regarding the price) will increase. Therefore, - in my eyes - I would not take Swiss Life.

To answer your question: yes, it is possible to get the irrevocable promise of payment without fixing the interest rates. You have theoretically time until the transfer of ownership to fix the rates. But of course, no one knows, how the rates will develop until November 2023…

If you will continue with Swiss Life they will give you a promise of payment and assuming that you will find a financing instution afterwards which is cheaper, you will pay a fee of CHF 1’000 to get out of the contract. As you say, this penalty varies and is normally between CHF 1’000 and 2’000 AS LONG AS if you do not have fixed the rates! This is very important. If you fixed the rates and you want to change the mortgage, you will pay a hefty fee.

I hope, this helps a bit.

EDIT: forgot to answer the last part:
Yes, the down payment has to be transferred to the mortgage-giving company. You can create a so called “equity account” at Swiss Life. Since Swiss Life is not a bank, they will open a private account with a private bank, this service costs you CHF 300. The other option is, to get a promise of payment for your own funds at your own bank, which will be more or less CHF 500. Moreover, you have the hassle to discuss with your bank why you are not setting up the mortgage with them, and they will be not happy just to create a funding confirmation.

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Hi Xerox,

Very much appreciated your feedback and input here - thanks a lot.

If I may, some question please.

  1. Le’ts assume I go ahead with the insurance firm A. They will create this equity account and I will transfer my money (e.g. cash and 3a withdrawn) → cost 300 CHF. Then they will issue this “promise-of-payment letter” WITHOUT fixing any rate. Le’ts say, November 2022 (12-month prior the effective release date), the insurance firm will offer me x.xx %. I look around and I find another institute offering better conditions (e.g. >0.5%). In thise case I can ask insurance firm A to align their offer with the low-one I found and if they cannot (most likely, if it’s an aut-aut approach), then I can exit by paying this penalty (approx. 1’000-2’000 CHF) → cost-effect of such scenario: c.ca 1’300-2’300 CHF (penalty+equity accounmt service) . Do I need to explicity ask for this exit-clause and conditions(or will be written in the document I will sign)?

  2. At the moment, I’m issuing the request for mortgage to both A and B, also to understand what they will effectively propose (so far, apart from the document template requests, I haven’ts see any formal document yet, where I can effectively see all these conditions, such as exit-clause, 0.05% fee etc.). I tend to believe that it’s not a unfair practice mine, since I need to get a better view on their products, as in the “explore/discovery” meetings, it’s just about talks - and the only way is to get a formal proposal.
    Here my question is → Can I move it on in parallel, till the point they will ask me to counter-sign, correct? The issuing of the request for mortgage (where I explicit how much cash, when etc.), is not binding itself (my guess): they would need to elaborate the request via the credit officer and once (and if) approved, they should propose me the “promise-of-payment” (Zahlungsversprechen) letter, which to make it effective I have to sign-off. Is that correct? So far I haven’t sent back any signed document, because indeed I’m not sure about that.

3. I was not aware of the option to request the promise of payment of my funds at my bank (which is the bank institute B mentioned earlier). Can you please explain me better of it works? I guess the selling part, won’t just required the funding confirmation from my bank (e.g. 20% of total price), but rather a full confirmation (80+20%).

Just a side note: to avoid (or let’s say, better mitigate) the side-effect of a delay with the apartment delivery with the insurance firm A (where 0.05% /month may be charged), an option would be to set the the delivery date +3month in advance. In case they will be punctual with the release (or even anticipate), Day-0 can be anticipated with no issue (as far as I understood from the broker). In case of delay (assuming there are force majeaure situations, where seller can evoke), then I can be covered.
Given the un-flexibiltiy of the Bank institute-B to anticipate eventually the starting of the mortgage, this work-around makes the A way more flexible, from my point of view (and if this anticipation is really viable and effectively confirmed).

Thanks a lot
Best,
Cappuccio

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  1. It will be written in the document you will sign. Insurance A is an exeption: even if you fix the rates but they did not pay out the cash, yet, you could step back from the contract.

  2. Yes, as long as your signature is not on the mortgage contract, nothing is binding. Of course, it is not the gentlemen’s way to go for one financing institution and then change it, since the fist financing institution had some effort, too. Of coures, I cannot guarantee that they won’t charge you an administrative fee, but it is uncommon.
    It is only getting a bit complicated, since the irrevocable promise of payment is an important document and you have to give it back to the issuer. Then you can go with another provider. No, the promise of payment is not signed by yourself, this is a signed letter by the company to the seller (they are promising to the seller that they pay, not to you).

  3. The bank is only giving you a promise of payment of the amount you have, therefore your down payment. By notarization, you need a promise of payment for the part of money, you did not transfer to the seller, yet (normally you already payed a reservation fee and a small party by the notarization. Therefore, the seller wants to see a promise of payment for the remaining amount).

It is always easier having a mortgage contract starting a more later than sooner. You can get the money earlier, that’s is not a big deal. Therfore yes, if you are assuming that there will be a delay, better take into account some more time.

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Thanks a lot, Xerox, for the detailed explanation.

By comparing these two alternatives, the Insurance firm A looks giving more flexibility - and for such kind of projects, where delivery date is so far away, makes me more comfortable with.
In case the situation will request a change (e.g. lower % somewhere else), I will see.

Now, the only side-effect is that Insurance firm A broker, is pushing to get a 3A with them, and to sign it asap (usual topics: better sooner than later so conditions are more favorable, this will “speed-up” the mortgage etc.etc… we all know this story).

The proposal does not look so bad to me, altough it’s a 25-yr contract, associated to a life-insurance policy which gives 80% guaranteed capital and very modest increments - the broker sells it as the flag-ship product they have on the market :slight_smile:
Well noted that, if the mortage won’t be taken with the Insurance FIrm A, then the associated 3A is more an appendix which should be likely removed, but it will cost 10K if the exit is done - let’s say - in 3 years (for 1st year, 3445, second year 6889 etc).
Many people here are not really happy about this product, and I do fully understand their concerns, but in my case, it might work.

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Hi all, to keep you posted and requesting further support with my lack of understanding :slight_smile:

I managed to understand (yeah, not so immediate to me, this concept), that basically there are 2 Zahlungsversprechen requested

_the first one, which is about the promise of payment of the 20%. This one, like Xerox correctly said, can be issued by “any” bank. It’s a service (e.g. PF should ask ± 200 CHF) and precondition is to have the funds on your balance, and these will be freezed till the date of the preliminary contract sign. But this is not applicable for the Insurance Firm A, where (from what I understood), they will not create any equity account to transfer the money: the 20% downpayment is something I need to manage by myself with my current bank, they do not step-in - they will make only the second promise of payment…
_the second one, which is the promise of payment of the remaining 80%. In this case, is the bank/institute offering the hypo which has to issue the letter (previous checking affordability etc.etc.)

Someone I was wrongly assuming that was the second Zahlungsversprechen was the one required to bring during the preliminary contract, as I ingenuely thought “it’s the preliminary contract, why do the real-estate need a confirmation of the 20% amount if a couple of days later I go to the notary to sign?” But now I understand that at the time I will sign the contract, the money are not yet in their pocket, so they want to be sure, that right after the amount will be paid.
Does anyone know, in such situations (apartment in construction) when it is expected to have the Zahlungsversprechen for the mortgage? Few months before the delivery, or way more in advance?

The more I deep dive, more confused I get…

Thanks to whoever can help me to understand it better :slight_smile:
Cheers,
Cappuccio (slowly I move to a latte macchiato) :smiley: :smiley: :smiley:

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Normally, you do not have to organize by yourself a promise of payment (PoP) - that will do the bank, once all your needed equities are transferred to them :slight_smile: Since it is an insurance company, they do normally not offer a bank account. If it is Swiss Life, they do, ask again. The bank account is a Lienhard & Partner, if I remember right.

Anyways, you can dodge that with the following options: 1) the bank - where your equities are stored - gives you a PoP, 2) you are transferring the assets on the day (in the morning) to the seller (beware the risk), 3) you are asking the notary, if they have an escrow account or 4) you are simple asking the seller if he can waive it.

1 Like
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Hi Xerox,
Many many thanks for your advices. Always very precise!

Best,
Cappuccio