Getting credit for your assets: Swiss mortgages and Lombard loans are very popular among expatriates, foreign investors and native Swiss who wish to buy property or start a business. Let's take a closer look at these popular sources of cash.
| Auteur | Donnellon, Brien |
| Fonction | MONEY |
A mortgage loan is provided for the purchase of property, and, by definition, the property is pledged as security. This means that as in any other country, the lender can repossess your house if you default!
In fact, the lender holds the title to your house until the debt is completely paid off, and the lender will sell your house in order to get the money back if you can't make your mortgage payments.
Your down payment is the lump sum you pay up front. You can put down as much capital as you want, but 15 to 20 per cent is the minimum amount of security required by Swiss banks for a first property. Capital in a Swiss corporate pension can be used to finance your primary property. Non-Swiss are treated the same as native Swiss but negotiation is a must for everyone!
Your mortgage payment includes principal, the amount of the loan after down-payment and interest, which is what the lender is charging you for the loan. The interest will be a percentage of the total amount of money you are borrowing.
Mortgages can involve a gradual repayment or interest-only payments.
Repayment mortgage
The mortgage is paid off over an agreed period usually in quarterly or yearly payments that gradually reduce the principal of the loan. This is called amortization.
Initially the portion of your payment that goes to pay the interest is much higher than the portion that goes to the principal. A big advantage of a repayment mortgage is that at the end of the mortgage term, most of the debt is repaid.
The interest-only mortgage
With an interest-only mortgage, your monthly payments to the lender only pay the interest charges. The actual mortgage balance--the amount borrowed--does not decline.
This means you must repay the capital part of your loan at the end of the mortgage term. To do this, you put money into a separate investment. This should grow and enable you to pay off the mortgage when required to do so.
Market volatility has recently has put many people off the idea of saving their mortgage repayment through the stock market. Poor performance of the stock market causes investments that are now maturing to under perform.
If the growth assumptions for an investment are conservative, however, there should not be a problem.
An interest-only mortgage is tax efficient in Switzerland because the interest is deductible. A tax efficient way of indirectly repaying the mortgage is to invest in a pillar 3A bank account, which is pledged to the mortgage lender--usually...
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