Attention homeowners!: Early retirement planning is a must

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It pays homeowners to start planning for retirement early. This is the only way to minimize risks. An important factor as you approach retirement age is that income normally declines. Depending on the financial situation, this change should be planned from the age of 50 so that negative surprises can be avoided. The following points should be considered when planning and budgeting:

One challenge for mortgage borrowers is that banks approach their mortgage customers differently when they retire. While some are invited to meet with the bank when they are in their mid-50s, other banks approach their homeowners only when they are 60 or even 65 years old. Things may be different if the mortgage has been repaid up to 65 percent of the property’s value by the time you turn 60. According to Florian Schubiger, Managing Director of Hypotheke.ch, the bank may not even seek a dialogue with the client, and the mortgagee decides how to arrange their retirement and real estate financing. Accordingly, homeowners are advised to start thinking at an early stage.

Basically, long-term planning is the most sensible approach. That means you should start budgeting about 10 to 15 years before you retire. This assures homeowners that they won’t be in for a surprise when they reach retirement age and their finances are uncertain. This is especially true for mortgage borrowers who still have to make depreciation payments on their 50th birthday and have a relatively small budget.

For many homeowners, the kids have flown away for a long time or shortly before retirement, double-earner status and depreciation that has already been made provide a lot of financial space, often from age 55. The cut comes when people reach retirement age, as Schubiger emphasizes. Income drops dramatically when you retire.

Anyone who bought a home or condominium 20 years ago can expect high value increases in recent years. This means that the 65 percent loan-to-value cap for mortgage financing is only achieved through value increase. No one who buys a home today should think that property prices will rise so dramatically again in the next few years. Accordingly, it is reasonable for homeowners to assume that prices will not change in the future when budgeting. This conservative budgeting ensures that long-term costs are covered as reliably as possible.

A significant number of mortgage holders invest in securities in addition to their own homes. There should be a good mix between the mortgage amount and the investments. If you don’t need freely available funds and have a long-term investment horizon of 10 years, for example if the property is mortgaged at 65 percent or less and you’re investing in dividend stocks, you can definitely forego further depreciation. This means that provision and savings cushions can be created for the period after retirement. That’s why it’s important to set up a liquidity plan for the years before and after retirement, regardless of whether the liquid funds are high or modest. In addition to earnings prospects, the diversification of risks also speaks for other asset classes away from real estate.

Regardless of the age at which the house was purchased, homeowners are advised not to simply amortize the sums that the bank charges. Instead, Schubiger recommends repaying the difference between the 5 percent imputed interest rate and the effective interest rate—for example, a 2.6 percent ten-year fixed-rate mortgage. With a mortgage of one million, this would be 24,000 francs per year in this example, and 240,000 francs could be set aside over a 10-year period. Schubiger explains that this significantly increases the financial room for movement into retirement.

Planning how long the detached house or condominium will be occupied or maintained is also a non-trivial factor. For example, if a person decides to stay in the family home until age 70 and then moves into a rented flat with amenities such as level access and an elevator, the sale can earn cash. Accordingly, in this case it might make sense to assume the lowest possible interest costs and amortize a large amount, explains Schubiger. With a longer stay in the home, a higher loan-to-value ratio without further depreciation may make sense, depending on the income situation after retirement.

When you reach retirement age, not only do mortgage holders age, but home ownership often ages a bit too. Accordingly, the need for maintenance and renewal is increasing. Switching from the old oil-fired heating system to heat pumps is costly because in many cases additional measures such as new insulation and windows are required. Homeowners often cannot avoid these measures because it is the only way to prevent property from depreciating over time. Better sales prices are already being demanded for real estates that offer climate-friendly heating and optimized heat and insulation technology. However, costs are only one of the parts to consider in budgeting and liquidity planning. On the other hand, there are tax savings that result in high savings. As a trustee from Bern explained to cash.ch, with good planning, a reduced tax bill depending on the canton can mean that the cantonal tax burden is actually reduced to zero. Accordingly, tax planning and optimization in renovations and renovations is extremely important.

If you want to be safe, you should consider different mortgage interest rates when budgeting. Specifically, this means that not only moderate interest rate scenarios of 2 or 3 percent should be considered, but also a maximum interest rate scenario of 5 percent – this corresponds to the benchmark value of banks. In many cases, these maximum high interest costs have a significant impact on the cost of living as the amount freely available becomes smaller. In this way, the mortgage borrower, whose income declines, especially after retirement, can quickly adjust his expenses in the worst-case scenario with increased refinancing costs as his income and cost base are known.

The type of financing you want to use to finance your pension depends primarily on your financial leeway. If you have highly liquid funds, a Saron mortgage is essential because a short-term increase in interest rates can buffer it financially. If there are still depreciation payments to be made in retirement, a flat rate mortgage is the obvious choice. In a historical comparison, interest costs for a fixed rate mortgage are higher than for a Saron mortgage. However, these are fixed with a fixed rate mortgage and the budget item can be expected to remain unchanged.

Anyone who uses some of their retirement assets to buy their own home should clarify with the bank at an early stage what impact this will have on repayments. According to Schubiger, there are banks that require the full amount of this early withdrawal to be amortized. Accordingly, it is important to clarify this carefully. This also applies to tax optimization for retirement assets.

Depending on the bank, double fixed assets are discounted at retirement or converted into fictitious pension and included in affordability. Accordingly, retirees with additional assets to the property are often particularly welcome customers at the bank. Therefore, it makes sense to re-coordinate the financial space with the bank when you retire, or to check the overall financial situation on any comparison portal such as hypotheke.ch. Because one thing is clear: retirees with very heavy houses are often good customers for the bank, as risks such as unemployment are gone.

Source :Blick