Repayment of mortgage loans
Agility in repaying the loan. The reason for this is that the borrowing rates remain fixed until the repayment of the loan is planned. When repaying your mortgage in installments to the bank, ie the amortization, there are various possibilities. The term of mortgage loans is as uniform as the term, so different are the repayment terms.
Spiritual debate on the reimbursement of processing fees for mortgage loans
Following the BGH decision to reimburse processing fees for consumer credit, a debate has arisen as to whether these decisions are also applicable to real estate loans (ie mortgage loans). Homeowners with mortgage debts are advised in the press release published by the consumer protection association “wohnen im Eigentum” yesterday, that the processing fees for their real estate loans should be recovered by the end of 2014. The consumer center Dusseldorf is reproduced in this press release with the comments, according to which the two decisions of the BGH of 28.10.2014 (ref. II ZR 348/13 and II ZR 17/14) in principle also refer to real estate loans, but not all.
The lawyers are controversial whether the judgment of the Federal Court of Justice (BGH), which was originally issued for consumer credit, can in future also extend to mortgage credit. Regardless of this legal question, it is clear that, according to Maxer Lobs of FMH, practically no institution for applying for mortgage loans charges processing fees. This could have happened 10 years ago, with processing fees of 0.25 to 1 percentage point of the loan amount (see www.faz.net).
In this context, the processing fees for mortgage loans are de facto a phantasm. Provisions for granted but not yet utilized mortgage loans and a discounted amount as expected interest are by no means comparable with processing fees, but are interest components. Anyone considering all of this should refrain from filing an application for reimbursement of mortgage processing fees.
Other issues include the sum of the prepayment penalties for repayment of a mortgage loan before the end of the contractual fixed interest period, non-payment penalties for waiving a loan after conclusion of the contract or other fees such as a takeover fee for the lending by another borrower or a lien for the assignment of liens of one lot to another.
However, these fees and charges are also not to be compared with the processing fees or the fees for the creditworthiness assessment of the borrower in the consumer loans mentioned in the BGH judgments.
Amortization: Is the repayment of the property useful? mortgage
Many homeowners ask this question: Should I reimburse the mortgage on my property? How can I finance myself if I can not get the debt out and use my assets elsewhere? Here we will discuss the use case where you have assets and are considering reimbursing more of the funding.
In another example, one would ask whether direct or indirect depreciation (via 3a pillar) is better. If the loan is more than 2/3 of the household value, the lending institutions usually grant another mortgage loan with a second property. However, this second mortgage must expire within 15 years. Often indirect depreciation is more advantageous due to tax savings.
However, the next question is whether the repayment of the property will pay off on a large scale. When is it worthwhile to repay the property? There is a simple answer to this question: if the mortgage rate after deduction of tax is above the return on investment after deduction of tax, then it is worthwhile to disburse the property.
But how do you calculate these two interest rates after deducting the tax? Family anxiety is economical, safety-conscious and has a high priority. The family business has recently inherited CHF 100,000 and has other assets of the same order of magnitude. Your apartment still has a fixed-rate mortgage of CHF 400,000. The marginal tax rate is 30%, ie a reduction in the taxable profit of CHF 1,000 reduces the tax burden by CHF 300.
Should family anxiety undo part of the burden and reduce the debt to 300,000 francs? Mortgage interest rates are generally 3.0%, after deduction of tax 2.1% (3.0% x 0.7), as mortgage rates are deductible from the taxable profit. The interest income on the bank account is also taxable, the net yield after deduction of tax is 0.7% (1.0% x 0.7).
Thus, the mortgage interest rate after deduction of tax is 1.4% above the interest result on the genetic material. Family anxiety brings in CHF 1,400 per year if they use the inherited capital to repay the property. Therefore, depreciation is worthwhile. He has taken over CHF 100,000, is well spread and invested in various investment funds.
Berger expects its depot to generate an after-tax return of 5.0% per annum. The property pledged by him to his home in the amount of 500,000 francs is about to expire. The marginal tax rate is 33.3%. Should Mr. Berger leave his legacy in his equity portfolio or reduce his mortgage by CHF 100,000? The mortgage lending rate is typically 1.8%, net of tax 1.2% (1.8% x 2/3), as mortgage rates are deductible from the taxable profit.
He assumes that his equity portfolio will achieve a 5.0% after-tax return. Thus, the mortgage interest rate after deduction of tax is 3.8% lower than the expected income from the inheritances. Berger saves CHF 3,800 a year if he has the inherited capital in his custody account. Therefore, the depreciation of the property does not make sense.
Example 3: 100’000 on a 3a retirement savings account, repayment expressive? On the one hand, to save tax, and since the acquisition of your building also pay off indirectly. The 3a interest rate is 0.5% and the marginal tax rate 40%. An additional wealth tax of 0.4% is attributable to another CHF 100,000 of the assets. With the withdrawal of CHF 100’000 from 3a. Pfeiler can now reduce the burden on the Sure host family from CHF 700,000 to CHF 600,000.
But is it worth it? The mortgage interest rate is 1.5%, after deduction of tax 0.9% (1.5% x 0.6), as mortgage rates can be deducted from the taxable profit. The interest on the 3a account amounts to 0.5% and is duty-free. Added to this is the property tax currently in the savings phase of 0.4% (in the case of withdrawal, the taxable assets increase because the burden would be lower again).
So with these hypotheses it does not matter if the burden is reduced or not. The higher the mortgage interest rate after deduction of the tax in relation to the net return on investment, the more probable the higher the mortgage rate. If you pay your property with an expensive mortgage and invest your capital very solidly and with a high return, the repayment of the mortgage usually pays off.
The interest on the loan is higher than the interest on the after-tax assets. The basic requirement for this is that you do not use all your fixed assets for this purpose. In some cases it is difficult to replenish the financing of your property, especially if the income situation has changed. Especially for retirees with low salary, but high effort, the depreciation should be well thought out.
In some cases, it may be better to pay slightly more interest and have access to your fixed assets than to invest all your illiquid wealth in an investment (your own home). On the other hand, if you pay for your home with a cheap property and wait for a higher return on your capital, then you should not repay the property.
What did you do with your property? Tip: Before you extend your property, it is important that you are offered by various banks. An overview of the currently valid interest rates can be found in our interest rate comparison for real estate.