I’m grativing around this forum since few weeks, attracted by the mustachian mindset. Now I have a situation I would love to share with you, looking forward feedback.
After years of searching, we finally found an apartment to buy. It’s a new construsction building (ETA, Q4/2023).
This week we completed the reservation (20k) and now wait for the next steps.
So, the steps ahead are the following:
1. Go to the notary for the promise of payment. Here, the approx 20% downpayment needs to happen, plus contextually, the letter of the financial institute to guarantee we can afford this payment (which is a different document compared to the one we requested to the bank weeks ago and we shared with the real estate agency). Sorry I do not recall the name in german.
Question: listening around, my current understanding is that at the time of this signature, there is no need to have the % rate of the mortgage fixed. I only need to have my bank endorsing I can afford this payment. Not sure if a contract with the bank should be in place, but it seems that if that’s the case, it’s possible to call-off, by paying a sort of penalty (e.g. 500 chf, or kind of). Reason of question, is the current situation with the % rates and the limited number of banks willing to offer the %rate block for more than 12-18 months. The consultant is advising me to do not worry about that, and that the % can be fixed in a later stage, (e.g. September-November 2022), as that 1) would give more options with banks offers and 2) altought consistent market prediction from here to Q3-4/2022 are difficult to anticipate, so likelihood to have ± same rate as today is not unrealistic. Would you then also advise to simply park the topic at the moment and take it up in a later stage?
2. For what concerns the mortgage and the ammortization, FYI the consultant works for a financial institution firm, and despite he’s waving super-partes position, I guess that at the end, interest for him is let his company score. The consultant is now offering the following options
a. Using the current 3a to add the cash (and close this one);
b. Pledging the 2 pillar (here he makes his strong statement, endorsing that the pledging of the 2pillar can only bring benefit as it reduces the effort of the downpayment, also if the latter is possible with full-cash.
c. Open a 3a with his financial institute with guarantee capital. Here I’m waiting for the proposal, to read carefully all the details.
d. After the dossier, he offered 3 mortgage options. Maybe by simple coincidence, the one of his financial institute is first ranked (c.ca 1.4% 10y).
Question : the consultant looks very competent and serious, however I would like to post these questions to hear other opinions, likely more neutral.
3. I got to know that some banks, offer a special discount for apartments having the so-called Minergie or CEAK certificate. I asked the real-estate, but unforetunately they do not offer such kind of certificate, but I understood is it possible to request it also by myself, and the costs are between 500-3’500 CHF (depends on who you know, and if you go direct way of with some shorcuts).
Question: Is anyone aware of these certificates and had already experiences on how to get them?
Yes. Once you’ve signed the purchase agreement, you can go to different banks. We financed at UBS and i f we would have gone to another bank, UBS would have charged us 500.- for the Zahlungsversprechen
Tricky question, I think there’s no right or wrong. If you’re happy with the 3a products of the bank, I’d go for indirect amortization.
Don’t know about Minergie. Concerning GEAK: There’s a list of certified experts available on the GEAK website. I’d call one and get a quote. 500 sounds about right for a simple GEAK which is sufficient for you. (GEAK plus for c. 3000.- includes recommendations on how to refurbish to save energy)
I’d recommend you to browse some other forum specifically for the questions concerning the sale and purchase agreement.
Can you choose tiles, kitchen, bathroom equipment etc.? If so, is the budget per m2 sufficient (it usually isn’t)? What if you want to have slight changes on the floor plan? What are costs of replanning due to changes in general? If you want to buy e.g. the kitchen from another provider than the general contractors one, whats the penalty?
In case of a construction damage (Baumangel), make sure to be able to claim it from your general contractor. If you have to claim it from the sub-contractor, everyone will say it’s the other ones fault end you might have to sue 3 parties…
Just one remark from me: try to negotiate to pay as few as possible before taking delivery of the apartment. Double check the financial situation of the developer (ask for financial statements if possible) and insist on entering the contract and paying the down payment to the entity owning the land/project rather than a “management company” (they tend to do that) that has no assets…At the end of the day you are practically giving these guys a loan (an unsecured one as well!) so checking the borrower’s ability to deliver/pay back is not unreasonable.
Since delivery is almost two years down the road many things can happen especially on a rising materials cost environment. A good friend of mine had unfortunately been a victim of a bankrupt developer which entailed financial cost for him …fortunately my friend has gotten delivery of the apartment (he still had to pay for some common areas not yet finished such as the roof) however the person who has bought the top apartment which was not yet ready practically lost his down payment…(in Switzerland contractors will rank above you in bankruptcy proceedings).
Sorry if I sound like Dr. Doom but things like that happen so I would try to be as safe as possible…
If he claims that pledging 2nd Pillar reduces downpayment effort you can change consultant, he does not know what he is talking about. 2nd Pillar pledge is NOT considered equity : it only reduces the lending ratio which in turn may give you better interest rate conditions. If you want to use 2nd pillar to reduce downpayment / repayment efforts you need to withdraw the money but surely not pledge it (there’s a MAJOR difference here lol). On the other hand pledging a 3rd pillar account is considered equity and reduces downpayment / repayment efforts.
Hey. Hereafter some tips regarding the financial situation for my future apartment (delivered soon - by end of august this year ).
Regarding the usage of the 2nd pilar, don’t forget that if you withdraw some money from it to increase the amount of cash of your side, you will pay some extra++ taxes on it. I withdrew 80kCHF for my new apartment and I have paid 5kCHF of taxes on it .
I suppose that your apartment come with “standard level” equipment. To me the “standard level” was not enough and we have chosen higher quality products (especially the kitchen and in the 2 bathrooms). We had to pay cash for this add-ons BUT the good news is that it increases the value of the apartment which leads to a diminution of the 2nd rank mortgage ratio.
We use a “linked” 3A pilar (at UBS) for the amortization of the 2nd rank mortgage (max 6883.- per year) to get taxes reduction.
As we are both 54 years old (Mrs and Mr), we decided to amortize it in 10y to be clear at retirement.
To point 3: Mortgages with “minergie” discounts are generally not the cheapest mortgages available. So while you get a discount on the (expensive) mortgage rates of banks which offer energy-efficient mortgages, there are regular mortgages from other lenders which are cheaper.
Pledging of pillar 2 means you bring less equity, which means higher interest rates. You need to decide on your own whether option a or b makes sense for you.
Pillar 3a, it has been mentioned but to be specific, if the bank offers a solution at affordable TER (<1%) with 100% stock possibile, then I would go for it. Whereas, if you are offered any insurance type or more expensive option or less than 75% equity product, then it’s a no go to me.
Lastly on fixing interest rate. True what your advisor says but I would closely monitor this, follow IRS 10y CHF to give you a sense on how the rate is moving. Pls note you won’t get the IRS but probably a 2x multiplier or more on this. I am not working at a bank. But use this as a directional movement for the rate. I would also ask your advisor to provide you a directional rate now so you can anchor to current IRS at 10y (or less if you choose shorter duration)
Many thanks for your input, Bosco. You’re correct for the GEAK, I likely do not need the super one but maybe just the mini-version. I will investigate more on that.
Thanks a lot, Moustakalis. I noted down your fair points. I need definetely to evaluate these scenario and try to anticipate as much as possible. My risk appetite is not very high here. I did a first check and the company itself has lot of reference and they seems to be quite well-known in that specific geographical area (on their portfolio, different set of apartments, from medium to very high standard ones). But again, a cross-check is still required.
Thanks HoiZame for your contribution. Your passage is really interesting, because it shows how I may misunderstood the topic.
About the pledging of the 2 pillar, I understood that this is to be done to reduce the downpayment (e.g. 1mio apartment cost, 100K cash and 100K pledging the 2pillar). But reading your comment, is only concerning the lending ratio, so it’s about the “affordability” of the mortgage? Could you please explain me better the concept (maybe with an easy example to facilitate my understanding?) Thanks in advance!
Hi 314rch, thanks for sharing your situation. Actually I’m not willing to withdraw from 2pillar, my intention was to follow the advise of the consultant to pledge it, assuming (wrongly, as I got to know now) to limite the downpayment required. We are also planning to consider some “upgrades”, with the sanitar and with some components of the kitchen, as well as different deployment of the room layout - but nothing really expensive, we should be ± with the range of +30-40k CHF. Just a question please: these add-ons, how have been calculated by the bank? Using the invoices and adding the delta into the overall purchasing costs? It means that those upgrade must be agreed and budgeted “prior” the signature with the mortgage, correct? thanks a lot for your feedback
Hi Daniel, thanks for sharing the material. Your point is fair, indeed only including such discount (minergie/CEAK) the offer price could be comparable with others. Be sure I won’t just stick to the initial offer, as I benefit of all this very good points and comments found in this forum, to better prepare myself to face the jungle of the mortage treausury island
Hi Steve, thanks for your inputs. I’m not familiar with a some acron you used (e.g. IRS), so pardon me if I could not fully understand some passages.
For the pledging of 2 pillar: I’m a bit confused. Assuming the example above in my answer to HoiZame, given a 1mio apartment cost, 20% is downpayment, where 10% can be cash and 10% coming from 2pillar (in case of withdraw).
In case of 2 pillar pledging, how it will look like?
Sorry I guess I did not explain it correctly myself and maybe did not understand what was meant by downpayment in your comment. The system makes the distinction between core funds that when pledged do not need to be repaid and count as equity and non core funds that need to be repaid if pledged. Pledging 2nd pillar does not count as core funds and needs to be amortized if you are below equity requirements. Also some financing institutes do not accept a construct whereby 2nd pillar pledge makes up the min 20% collateral and still require a minimum of 20% of cash / pledged core funds and only consider 2nd pillar pledge for the part above these 20%.
Assuming a mortgage of 1 000 000 for a main residence the bank lends up to 80% and you need to provide at least 10% of core funds and be able to repay so that you reach 33.33% equity within 15 years or before 65 years.
If you provide 100k cash (outside of second pillar withdrawal) and pledge 100k 2nd pillar you will have to repay the 100k of the 2nd pillar pledge plus 133 000 over 15 years or 15 533 per year, be able to support 45k interest per year (900k * 5%), 10k maintenance per year so you need 212k salary per year to support the construct
If you withdraw the 100 k from 2nd pillar instead of pledging them on top of the 100k cash (not coming from 2nd pillar because of min 10% core funds requirement) you now provide 200 k in cash and only need to repay 133 000 over 15 years or 8866,67 per year. In that case the 100 k 2nd pillar withdrawal is still not part of core funds but it counts as equity and does not need to be repaid. debt is 800 k so 40k interests and 10k maintenance you need 176k salary per year
Instead of pledging 2nd pillar you pledge a 3rd pillar for 100k and provide 100k cash (could come from 2nd pillar since you already have 10% core funds with 3rd pillar pledge), debt is 900k but this time you only need to repay 133 000 as the 3rd pillar pledge is considered equity. So 45k interests, 10k maintenance and 8866,67 repayment you need 192k salary per year.
As you see here 2nd pillar pledge does not replace the equity you’re required to own after 15 years but now I guess I understand that downpayment in your sentence meant the initial payment you need to put down to buy in which case your advisor is correct but It’s only buying you time : eventually you’ll have to put it down. Also the more collateral you provide from the start the better the interest conditions but keep in mind that some institutes only consider the 2nd pillar pledge on top of the 20% cash / core fund pledge.
@HoiZame gave a good explanation on pillar 2 pledging vs usage. And others before flagged that if you use 2nd pillar you lose tax benefit on over contribution until original pillar 2 withdrawal is refilled.
Regarding IRS. Sorry some jargon here. IRS stands for interest rate swap. Basically a baseline at which banks borrow which on top you need to add their profits. This is why I mentioned you need to take IRS and probably multiply by 2 to get consumer mortgage rates. See link from money park that explains well the concept
Hi. The bank had no view on the add-ons. We have made our choices with the sub contractors and received an invoice for each add-on. We have paid directly to the main contractor.
The invoices are not going through the bank. When the construction will end (end of august this year), the computation by the bank of the trimestrial rent will taken into account 1) the initial price of the apartment and 2) the added value by add-ons, which will conduct to a lower rent (as we have added more cash).
The loan (fixed value, independent of the add-ons) is split into 2 mortgage (rank 1 and rank 2). The rank 1 is 66% of the total price (initial+add-ons). The rank 2 is 33% and is the only one to be fully refunded in 10y (for us). If we increase the total price, the value of the rank 2 decreases…
Hi Hoizame, your explanation makes me now the situation 100% clear. I really thank you for your time to get that so well explained.
So consultant is then rights on his advise, only remark I need to take is that is just to be able to buy more time.
If I may ask, giving the fact this proposal was offered by the consultant (btw good he made me aware of that of course), by having the required amount of cash for the downpayment, would be still advisable pledging the 2nd pillar? I can imagine this is an arguable question, as the amount of cash potentially to be avoided for the downpayment, it would be addressed to other kind of investments, should the % rate of the mortgage lower than the potential outcome of the investment itself, isn’t?
Hi ttR, let me understand better please. When you refer to the computation of the trimestrial rent, what is about? In that case, you need to communicate the invoices to the bank or how they will calculate that?
When you say that the rank1 contains the add-on as well, how the figure of the latter can be calculated by the bank upfront?
Hi. Hereafter an example of the computation’s method for the rent.
At the end of the construction, the add-ons invoices are sent to the bank by the company which manage and build the apartment and the computation occurs.
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Thanks a lot, Moustakalis. I noted down your fair points. I need definetely to evaluate these scenario and try to anticipate as much as possible. My risk appetite is not very high here. I did a first check and the company itself has lot of reference and they seems to be quite well-known in that specific geographical area (on their portfolio, different set of apartments, from medium to very high standard ones). But again, a cross-check is still required.
