Dream becomes a burden 7 home ownership mistakes that can ruin your pension
For many Swiss people, the dream of owning their own home is part of their retirement provision. But real estate can quickly become a financial burden if you ignore the rules for mortgages, amortization and pension funds.
No time? blue News summarizes for you
- Banks expect higher interest rates, which is why the mortgage may not take up more than a third of your income.
- An early withdrawal from the pension fund reduces the later pension and risk protection.
- Incidental costs, maintenance and small print are underestimated by many and can be expensive.
For many Swiss people, owning their own home is part of their retirement provision. But real estate can quickly become a burden - especially if mistakes are made when it comes to financing. Experts warn of seven pitfalls.
Calculating affordability incorrectly
Many people buy their own home without knowing the so-called affordability rule. Banks assess affordability on the basis of an imputed interest rate of around 5 percent plus 1 percent ancillary costs. Annual housing costs may not exceed one third of gross income.
Anyone who exceeds this limit will find it difficult to finance their mortgage - especially after retirement, when their income falls. According to an SRF survey, only 15 percent of homeowners can afford their mortgage in old age without additional amortization.
One aspect that is often underestimated is the notional interest rate: even if the current mortgage costs less, the bank expects a higher interest rate when checking affordability. If you take on too much financially as a result, you will have problems keeping the house later on. You should therefore plan early on how you can reduce the mortgage in old age or stabilize your income.
Taking out mortgages that are too long and expensive
Many people take out long fixed-rate mortgages because they want to protect themselves against rising interest rates. However, the VermögensZentrum warns against overly long terms: Those who tie up their mortgage for ten years or more often pay a higher interest rate. In addition, a high early repayment fee is due in the event of early termination.
Alternatively, Saron mortgages (variable interest rate) or a mixed solution of short and longer tranches offer more flexibility and often lower costs.
Another mistake is to be blinded by "special discounts". Many banks only grant apparent discounts; they then charge high fees for additional services or link them to other products. A careful comparison of the actual total costs - including expenses - is crucial.
Amortizing the mortgage too quickly or too slowly
A house purchase requires an amortization of at least 20 percent equity, half of which must exist as "hard" capital, i.e. savings or from pillar 3a. Many people use pension fund assets to bring in more equity.
However, those who amortize too much or withdraw their pension capital prematurely reduce their pension assets and lower their disability and survivors' benefits. On the other hand, too slow an amortization can lead to the mortgage being too high at retirement age.
A balanced strategy is to amortize as much as you can afford, but only use pension assets when there are no other reserves. You should also agree with the bank at an early stage how the mortgage will be adjusted after retirement.
Rely on the pension fund as your "own bank"
The promotion of home ownership (WEF) allows pension fund assets to be used for the purchase or amortization of an owner-occupied property. Many see this as a favorable source of financing. But this has consequences: An early withdrawal reduces the retirement capital and reduces the future pension as well as survivors' and disability benefits.
Alternatively, you can pledge your pension assets. They remain in the pension fund, but increase the pledge for the bank. Although future benefits are not reduced, the mortgage amount increases and with it the interest costs
Anyone who makes the wrong decision out of ignorance will either pay higher interest or risk pension gaps in old age.
Do not include your spouse
You need the written consent of your spouse or registered partner to use pension fund assets.
Some couples forget this and experience unpleasant surprises when the pension fund rejects the application.
You should also plan together how the mortgage will be paid after retirement - for example, by selling the house, part-letting or a reverse mortgage. Without a clear strategy, there is a risk of disputes and financial bottlenecks.
Forgetting ancillary costs and maintenance
When buying a property, many people only consider the mortgage and amortization. Additional costs such as taxes, insurance and maintenance are often forgotten. The VermögensZentrum puts the annual maintenance costs at around 1 percent of the property value.
Added to this are rising energy costs and renovations. Those who do not make provisions for this will have to take out expensive loans in old age or sell their home. It is worth setting up a renovation fund at an early stage and saving regularly.
Do not compare contracts
Mortgages are complex. Many people sign contracts without reading the small print. This can result in high fees, inflexible notice periods and poor conditions.
According to the Wealth Center, one of the biggest risks is accepting one-sided bank clauses - for example, that the bank can terminate the mortgage early or charges variable fees.
Compare several offers, get all costs in writing and, if in doubt, seek expert advice.
