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It is said that you can sleep safely with concrete gold. Real estate protects against inflation, is a stable asset in stormy times, and provides good retirement income. Your own four walls have always inspired ideas of independence, self-actualization and security. Owning your own home also comes with risks that are often underestimated. Especially when it comes to financing.
As a new ZHAW study titled “A Home for Life” shows, many homeowners struggle with fears. For this purpose, more than a thousand homeowners were asked how they financed their homes. Current moods were also explored, especially given that interest rates have risen sharply in the last year and a half.
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This article was first published on the paid service of handelszeitung.ch. Blick+ users have exclusive access as part of their subscription. You can find more exciting articles at www.handelszeitung.ch.
26 percent of home buyers needed PF money
Nearly a third (36 percent) of buyers were dependent on family support when purchasing their own home. Just a gift, an inheritance or a loan has enabled one in three buyers to realize their dream of owning a home. It also found that nearly a quarter of survey respondents had to rely on pension fund assets when buying their own home – through early withdrawal or lien.
When you make an advance, the pension fund transfers the money directly to the mortgage bank, which reduces the mortgage debt. In case of a pledge, the bank’s pension fund assets are used as collateral.
“A surprising number of buyers have to apply for BVG funds,” says Kredite.ch expert Florian Schubiger. “Cash and column 3a are usually consumed first. The retirement fund is often attacked when there are not enough funds or when a house is purchased at the upper income limit.
Reto Spring, President of the Association of Financial Planners, also thinks it is critical that the rate of buyers using retirement funds to buy their own home is high. “After all, this money is part of your own supply. “If it’s not repaid, there will be a gap and that could become a problem as we get older.”
Statistics show that much less money is paid back than withdrawn. Repayments increased slightly. But these are still around three to four times lower than the withdrawal of PF money every year.
Risks are also an economic problem
Risks are also an economic problem. This is why the financial supervisory authority (Finma) tightened the rules on equity financing in 2012. By then, the entire equity stake can be covered by PK money. Since 2012, buyers have had to contribute more “real” equity.
This means that anyone who wants to own a home must fund at least 10 percent of it with assets outside the second pillar (savings, securities, Pillar 3a funds, advance inheritance). Additionally, the mortgage debt must be amortized by two-thirds of the loan value of the property within a maximum of 15 years.
61 percent of those using retirement funds are afraid
Now fear is spreading. According to ZHAW research, 61 percent of homeowners with retirement funds fear that they will not be able to buy their homes in the future. “This fear is understandable,” says Florian Schubiger. “Many home buyers are feeling the pressure because they know their pensions will be significantly reduced in old age due to the withdrawal of PF. We are informed about this issue every year through the Pension Fund Card. » You may have wealth, but it is in your own home. In old age, these funds are not available and therefore cannot be used to finance living expenses or pay interest on debt.
Everyone who turns 65 enters a different life situation. Because: In retirement, income from the AHV and the pension fund usually covers only about 60 percent of your previous income. After retirement, there is often not enough money for necessary renovations and retirement income is very low. And there are risks even before retirement. Especially since your living situation may change suddenly, you lose your job, your partner dies or there is a divorce. In the worst-case scenario, the owner is forced to sell the property.
Plan early
That’s why it’s important to plan early. This involves analyzing what type of owner you are. There are people who want to stay in their own home until they die. You need to ask yourself whether your property will be sustainable in the long term after retirement. The situation is different for those who are part of a phase of ownership life. They plan to “downsize” after their children retire or move away. If you know that you will sell your property again, you can withdraw the retirement fund money more carelessly as you will have liquidity after the sale.
In principle: A bank will finance up to 80 percent of the market value of the property. If 80 percent of a house is mortgaged, the debt is divided into first mortgage (65 percent) and second mortgage (15 percent). The financial regulator (Finma) stipulates that the second mortgage must be amortized by the pension to ensure affordability even after retirement. The affordability rule states that no more than one-third of your income should be used for homeownership.
In some hot spots like Zurich and Geneva, some banks have reduced second mortgage amortization to ten years. “It is advisable to pay off the second mortgage as quickly as possible,” says financial planner Reto Spring. He recommends the fifty-fifty rule. “When you turn 50, you should reduce your mortgage to 50 percent because from the age of 50, your income stream is not that secure anymore. That’s why you have to pay it forward when you’re young or when you’re financially well off.”
When does a bank become active? Banks rarely take action on their own. Retirement is often covered when renewing your mortgage or if you are 55 or older. It is calculated that the client will be able to keep and finance the property even after leaving the business. If your income is no longer secure, you become unemployed, or your spouse dies, the bank may require more equity or early reduction of the mortgage. “To date, this has happened very rarely,” says Reto Spring.
When might things get critical? Current interest rates should not pose a problem for the majority of property owners. When banks give loans, they calculate the imputed interest rate, not the current interest rate, in their affordability calculations. This is between 4.5 and 5 percent. “If interest rates rise to 7 percent, as they did in the 1980s, we will have to expect sharp reductions,” Spring said. “Then real estate prices will collapse and banks may exercise their right to additional payments.” With a 10 percent price correction, the owner could lose half of the equity; This situation already happened in the 1980s.
Assurance to long-time property owners
However, there is also some peace of mind for property owners, especially those who have owned their properties for many years. This tool is called increasing value. “Many property owners are concerned about high interest rates but do not take into account the increase in the value of their property,” says mortgage expert Schubiger. “This provides a safety cushion.” In most major regions of Switzerland, prices have risen by around 50 percent in the last two decades. “Now young people who want to buy a house have to worry more. What happens if prices suddenly drop?”
Tips:
Advance withdrawal or pledge: There are two options for owning a home using retirement fund money: early withdrawal or pledging. When you withdraw money early, retirement funds are used for higher equity and lower mortgages. The disadvantage is that there is a risk of a pension gap that must be closed by repayments before retirement at the latest, otherwise there is a risk of receiving lower benefits in old age. When pension funds are pledged, they go to the bank to create more borrowed capital through the increased mortgage amount. The disadvantage is that mortgage interest rates are high.
“You should only withdraw money from the pension fund if it is financially impossible otherwise,” says Florian Schubiger. “In most cases it is better to commit because it reduces the risk of contribution shortfalls in old age.” You’ll pay higher mortgage interest, but the bank also requires depreciation over 10 to 15 years. Therefore you have to save money and pay it back. Then the debt is paid off.
Pay back: Refunds to the pension fund are not tax-free. Tax-deductible payments can only be made after the entire withdrawal has been repaid.
Risk advantage in case of disability or death: Especially young families with children need to pay attention to this issue because in the worst case, one of the parents may die or become disabled. It is therefore important to clarify whether the pension fund calculates the risk benefit, i.e. the IV pension, based on capital; In this case, this rate will be extremely low. In this case, you will need to receive a special IV pension when withdrawing money from the pension fund. Other pension funds calculate the risk benefit based on the current salary. But even then, the benefits from the first and second pillars may still be too low, which means that the mortgage holder will no longer be able to pay off his debts. In old age: It’s especially worth comparing for those looking for a new mortgage lender on the open market after retirement. Banks sometimes make completely different calculations, which leads to completely different conditions. For example, some banks include cash in the credit score with a customer-friendly approach, while others do not do this. Even though the AHV and PK funds in old age may be lower than the income you used to have, the income is secured in contrast to a possible job loss during working life.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
