The interest rate is far from being the most important aspect of your mortgage

When we talk about mortgages, we (wrongly) immediately think of the interest rate. But what defines a good rate and is it really the most important element? Choosing the right overall mortgage strategy (type of personal funds, loan structure, loan amount, type of amortization, taxation...) often saves more money than getting the best rate.

Getting the best rate does not necessarily mean getting the best mortgage

It is undeniable that the interest rate is a central element of a mortgage loan. It determines how much a portion of the loan will cost and it is generally on this aspect that the market players focus their communication, engaging in a real rate war. It is to the one who will offer the lowest, but getting the best rate does not necessarily mean getting the best mortgage. Other conditions must be taken into consideration.

 

A good financing strategy takes into account individual specificities

A real estate purchase is often the project of a lifetime and it is something very personal, with many elements that can vary according to the situation and needs of each person. A good financing strategy is one that takes these different dimensions into account, not only at the time of the loan, but also with a (very) long term vision. 

Age, family situation, the borrower's plans and tax implications are all factors to be considered when arranging financing. In addition to the interest rate, one must also pay attention to the structure of the loan, the amount of the loan and the tax optimization.


Loan structure

Even the choice between a fixed rate and a Saron rate, or a combination of both, should be determined by the personal situation to fit the borrower's profile and life plans. Should you opt for one or more loan portions? Over what duration? There is no right or wrong option, it depends on your needs.

For example, opting for fixed rates over a long period of time by spreading them out over different periods allows you to reduce your monthly expenses and to smooth out the risk over time. On the other hand, this option offers less flexibility for a possible change of lender at the time of a rate renewal. You will have to wait until all the periods are due, so you won't have to pay any penalties, should you wish to change your plans in the future.

Another aspect that must be taken into account is the possible resale of the property before the maturity of your rate. What will happen to the mortgage? Will you have to pay any penalties? How much? These considerations are essential in order to make a commitment knowing all the parameters.

Loan amount

The rule is that the borrower must have a minimum of 20% personal funds in order to obtain an 80% mortgage. 10% of the equity must come from savings and part can come from a BVG withdrawal, but it is also possible to pledge this amount of BVG, i.e. to pledge it to obtain a 90% mortgage. There are also alternatives that allow to complete the 20% capital, such as the solution proposed by Evahomes.ch which puts future buyers in contact with qualified private investors, in order to become a homeowner with only 10% of equity capital.

At first sight, these strategies seem to be more expensive, because more interest will have to be paid, but in the long term and taking into account the tax implications, it can be more advantageous. Indeed, if we consider the marginal tax rate, i.e. the rate at which the last income bracket is taxed, we can calculate the savings generated by a reduction in taxable income thanks to the interest deduction. For example, with a marginal tax rate of 35%, a reduction in taxable income of CHF 10,000 saves CHF 3,500 in taxes.

Amortization strategy

The amortization strategy must be thought out from the start in its entirety, in particular to limit the costs of the mortgage at retirement. Indeed, one should not forget that real estate expenses should not exceed one third of the income, while the income at retirement can decrease by 30% to 40%. What will happen if rates rise? Would you be able to afford to pay 2x or 3x more?

Choices such as integrating the 3rd pillar into the amortization can allow you to optimize your taxation with tax deductions each year, while providing for a reduction in expenses at retirement age.

Finally, it is also necessary to address the questions that make people nervous. What happens in the event of divorce? In the event of death or disability? Will it be possible to keep the house? What about in the case of cohabitation? Imagining the worst-case scenario allows you to put in place solutions beforehand and to adapt the financing strategy to best respond to potential problems. Being accompanied by a mortgage financing specialist allows you to think about all these eventualities.

Taxation

The interest rate determines part of your expenses. This first calculation is very important and allows you to determine if you can afford the cost of the mortgage. It is therefore natural to want to obtain the best rate to pay the least amount possible, but the calculation does not stop there. You have to go further and calculate the tax implications as well, because depending on the structure of your financing, the option with higher charges could end up being better in the long run by saving you money on your taxes.

Every detail matters and every choice has an impact that you need to understand. That's why the different lenders' offers should be carefully considered before making a decision.

The advantages of using a mortgage specialist

In Switzerland, the use of a mortgage specialist is still not widespread: 85% of people go directly to their bank and miss out on better opportunities. In the UK, more than one in two people use an intermediary. Why do they do this?

A mortgage specialist saves time and money. They can suggest the best financing package for a project, identify the best lenders for the situation in real time, and have the leverage to negotiate favourable terms with them. Above all, they are a privileged contact to whom all questions can be put and who accompanies the client throughout the project. They can also provide additional insight into the tax and pension aspects.

e-Potek is in contact with many lenders in the market, many of whom offer incredibly low rates, but who are not necessarily the best known to everyone. In addition, we have a special relationship with all lenders because we introduce them to a large number of clients, which gives us access to better terms than clients who go direct. Our entire activity is regulated by the FINMA and our position as a neutral intermediary allows us to avoid any conflict of interest.

The experience of our consultants is what makes the difference. They listen to the client's needs in order to be able to advise him/her on the best strategy for his/her projects. They know how to decipher the details of the different offers and inform about the consequences of each choice. They provide all the keys to make an informed decision based on more than just the interest rate and help optimize the financing and its fiscal impact over the long term. Indeed, getting a good rate is good, but you should not neglect the whole financing strategy to be put in place. It is difficult to think of everything, which is why the use of experts can be very useful.

Patrick Didi

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