Keep in mind, this is my understanding of it. Filtered through my non-fluent French.
In most places: the US, the UK, Canada, France… your goal when you buy a house is to pay it off and own it. Switzerland is not like that. Because of its tax system. You can own your property completely here, but you would be very financially disadvantaged.
In Switzerland, you pay a tax on your fortune. Looking at your accounts on the last day of the year, you report those balances to the tax authorities. Your assets are calculated as your “fortune”. Very roughly, in Geneva, you pay between 1.75% and 5.85% tax to the canton (it operates approximately like a US state or a Canadian province) on your fortune. But your fortune is offset by your debt. So, all the interest you pay on your overdraft on your bank account, or your credit card, or your mortgage, is deductible. The amount of your house that you do NOT own offsets your fortune, too. Clear as mud?
SO, when you purchase a property (and to keep it simple, your primary residence), you absolutely must have minimum 20% of the purchase price as your down payment, and then 5-8% of the purchase price for taxes, fees, incidentals, etc…
Given that it is hard to find anything liveable for under chf500’000, let’s take that as a nice easy roundish number. For a flat or house that is on the market for chf500’000, you need chf100’000 as your down payment. Half of that can come from your pension, 2eme pilier. The other half has to come from cash. And this is where the mortgage adviser taught me something new. That 3eme pilier (Swiss equivalent to US traditional IRA), if it is the bank account type of 3eme pilier (as opposed to the insurance policy kind, which I tried, but was a terrible idea for me), that 3eme pilier can be your other source of cash.
The idea with the Swiss mortgage is that you amortize (or pay off) 13% more after your initial 20% down, so that you own 33% of your property, and the bank owns 67%. If you can bring more to the table than your 20%, you are helping yourself move closer to a situation where you pay interest only. And your 2eme pilier, your pension, will allow you to withdraw more than the 10% of the property value. So will your 3eme pilier. So if you can afford it, it doesn’t hurt if you can put more money on the table.
The way PostFinance explained it is you really borrow in tranches. You can borrow just one lump sum for the 80% of purchase price, or you can divide it into parts. So you can have one loan that is for three years at a really low interest rate for half of it, and another loan for longer at not as good an interest rate for another fifth, and an even longer term loan for the remainder. Definitely consult a professional, because my strategy was to withdraw enough of a chunk of money that my mortgage was interest only at the beginning.
So the mortgage. Many people can shop around and get the best deal possible. Because I was buying a renovation, I was not so fortunate. PostFinance rejected the idea of financing the house. So did Credit Agricole. Credit Suisse wasn’t particularly interested. Hmm, these should all have been taken as red flags perhaps, but I was, shall we say, single-minded. Finally, there was BCGE. The only one who said yes. So then I didn’t have many options for the mortgage except for how long the term would be. And just when it all seemed ok, the fact that I am a US citizen reared its ugly head and caused another glitch. It got resolved, but the road to home ownership was beyond rough. Which again, should probably have been sign.
I currently have a 3 year mortgage that I am one year into. My interest rate is below 1.5%. I put 33% down on my house so that I didn’t have to amortize anything, but for a variety of reasons, ended up pulling a chunk of it back out in cash which I now get to pay interest on. #GoMe
Here is a link to the BCGE Mortgage Calculator. It’s alternately fun and depressing to play with.
La Marmite de Chocolat 