Keeping the mortgage from becoming a “mortgage”

People who will soon reach retirement age or who are already retired also want to realize their dream of owning their own home. When it comes to financing, it is important to plan carefully and always keep two key points in mind: Sufficient equity and sufficient affordability.

Equity is the foundation of all home financing. This may consist of "liquid" funds such as savings or securities. Home buyers can also 3. Use pillar balances, inheritance withdrawals, gifts, or third-party loans as personal funds. It is also possible to borrow against the mortgage or to draw on pension fund assets (2). Pillar). In this case, however, the share of cash equity (so-called "hard equity") must be at least 10 percent of the purchase price.

If purchased before retirement age, equity of at least 20 percent is required. In doing so, the second mortgage must be paid off within 15 years or before reaching retirement age. For a 58-year-old buyer, that means paying the 2. Mortgage, for example, must be repaid within seven years. This can lead to a rather high annual amortization obligation. After retirement, the equity ratio should be at least 34 percent. Depending on the property and the level of sustainable pension income, it is also possible that the bank will require a higher share.

Housing costs are everything that homeowners spend monthly on their property, i.e. interest and amortization of the mortgage as well as all utilities (electricity,water, heating, repairs etc.). These housing costs should not exceed 34 percent of net income. At LUKB, the calculation of interest charges is based on a long-term average interest rate (currently 4.50 percent) for this purpose. This imputed mortgage interest rate protects the customer from the risk of not being able to maintain a mortgage taken out during a period of low interest rates when interest rates are rising.

The income after retirement is usually lower, because the pensions of the AHV and the pension fund replace the income from employment. This requires the bank to make an individual assessment: LUKB, for example, also takes into account the assets deposited with it (account balances, securities investments) for calculating portability, which are derived from savings or from capital payments from the 2. and 3. Pillar were formed. Thus it is possible that the bank is ready with a low object load, despite not fulfilled Tragbarkeit to make a higher loan of the real estate, if the borrower can present a concrete liquidity planning.

Especially for home purchases planned around retirement, it pays to get advice. In addition to the affordability calculation for the desired property, this also includes topics such as pension, retirement and liquidity planning, taxes, as well as estate planning and inheritance law. Experience shows that those who set the course early benefit from greater freedom of action.

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