Is it worth looking at mortgages from Swiss pension funds? Find all the important information about using mortgages from Swiss pension funds in this moneyland.ch guide.
Most people in Switzerland automatically relate mortgages with banks. That makes sense, because banks are still the go-to destination for the majority of Swiss home buyers.
Many consumers are not even aware of the fact that many Swiss pension funds also offer mortgages. But pension funds are becoming more visible in the Swiss mortgage market, largely because more pension funds have begun offering mortgages to the general public. Previously, many mortgage offers were only available to pension fund participants.
Here, moneyland.ch answers the most important questions about mortgages from Swiss pension funds.
1. Which Swiss pension funds offer mortgages?
Many Swiss pension funds offer mortgages to private home buyers. Pension funds which openly publish guide rates for mortgage interest include:
2. Do Swiss pension funds only offer mortgages to their participants?
The ongoing negative interest rates environment drove pension funds like the Aargauische Pensionskasse (APK) and the pension fund of the Swiss federal railway SBB/CFF to begin offering mortgages to non-participants as well in 2015.
Other large pension funds like the Personalvorsorge des Kantons Zürich (BVK) have already offered mortgages to home buyers across the country for a long time – regardless of whether or not they participate in the pension fund. Because pension funds are not yet a known destination for mortgages, they often depend on mortgage brokers to obtain new mortgage customers.
There are also some pension funds which still only offer mortgages to their participants.
Pension funds which also offer mortgages to people who are not subscribed to their pension plans include:
3. Are there geographical limitations?
Yes, and these are often stricter than those of banks and insurance companies. For example, the Aargauische Pensionskasse, the Personalvorsorge des Kantons Zürich (BVK) and the St. Galler Pensionskasse only finance properties in German-speaking Switzerland.
The Personalvorsorgekasse der Stadt Bern and the Luzerner Pensionskasse only finance homes in the cantons of Bern and Lucerne respectively.
4. Why would a pension fund offer mortgages?
Mortgages are an attractive investment vehicle for pension funds. They are used as an alternative to bonds because – unlike government bonds – they deliver positive returns even in negative interest environments. Additionally, pension fund benefits generally remain in the fund long term, as withdrawals generally only begin at retirement. Banks, on the other hand, have to finance their mortgages with relatively short-term customer deposits.
5. Which mortgage models do pension funds offer?
Pension funds focus on fixed-rate mortgages (FRMs), but many also offer adjustable-rate mortgages (ARMs).
Some pension funds also offer forward mortgages with lock-in periods of up to 24 months. These include:
6. Which types of property can I finance with Swiss pension fund mortgages?
Swiss pension funds primarily finance homes used as primary residences. Some pension funds also finance other types of real estate like holiday homes or investment properties.
7. What are the collateral requirements?
Much like banks and insurance companies, many pension funds have a maximum loan-to-value ratio of 80 percent. Some pension funds will only finance up to 75 percent of a property’s collateral value.
As a whole, pension funds are more restrictive with regards to second mortgages (the part of a mortgage which exceeds 66 percent of collateral value). Some pension funds do not offer second mortgages at all, while others only provide them if you agree to pledge pension fund benefits or pillar 3a assets as collateral.
There are also pension funds which only offer second mortgages to people who are subscribed to their pension plans. Non-participants can only obtain first mortgages.
8. Which affordability rules apply to Swiss pension fund mortgages?
Like banks and insurance companies, Swiss pension funds require a cost-to-income ratio of around 33 percent. That means the combined costs of interest, amortization, and maintenance should not exceed one-third of your income.
9. Which mortgage terms to pension funds offer?
The majority of relevant pension funds offer fixed-rate mortgages with terms of 2 to 10. But some pension funds also offer terms as long as 15 years.
10. What is the minimum and maximum mortgage size?
As with insurance companies and banks, some pension funds require minimum mortgage sizes of 100,000 to 200,000 Swiss francs. The maximum mortgage size is typically 1, 1.5, or 2 million francs.
11. Do pension funds offer indirect amortization?
Second mortgages have to be amortized within 15 years or by retirement (whichever comes first). This can be done directly or indirectly. In direct amortization, payments are applied directly to mortgages and reduce your mortgage debt. With indirect amortization, you make payments to the tax-privileged pillar 3a, and these assets, in turn, are pledged to the lender as collateral against your debt.
Some Swiss pension funds offer indirect amortization. The Aargauische Pensionskasse (APK), for example, lets you indirectly amortize mortgages via a pillar 3a account at the Aargauischen Kantonalbank.
12. Are pension fund mortgages cheaper than other mortgages?
In terms of averages, that is the case. The interest rates of 10-year fixed-rate mortgages from Swiss pension funds analyzed by moneyland.ch were, on average, 0.2 percentage points lower than those of insurance companies and banks. The difference is even clearer when you look at short-term fixed-rate mortgages. Interest rates for 2-year fixed-rate mortgages from pension funds are, on average, 0.33 percentage points lower than those of their counterparts from banks and insurance companies.
Adjustable-rate mortgages also tend to be cheaper. On average, the interest rates of ARMs from pension funds are 0.48 percentage points lower.
Note that these are averages. There can be individual banks and insurance companies which offer more favorable interest rates than pension funds.
You should also understand that unlike other mortgages, the mortgage interest rates from pension funds often are not negotiable. The interest rates of bank and insurance company mortgages analyzed by moneyland.ch are guide rates which can generally be negotiated down. The interest rates of pension fund mortgages, on the other hand, are generally not advertised prices but effective interest rates.
13. Do pension funds offer special discounts?
In contrast to banks, pension funds generally do not offer special discounts like those for families or energy-efficient housing. Additionally, interest rates normally are not negotiable.
14. Do pension funds also offer online mortgages?
Many pension funds do not yet accept online mortgage applications, but there are exceptions.
15. What are the advantages of pension fund mortgages?
The biggest advantage are the low interest rates. Mortgages from Swiss pension funds are often relatively cheap. Often, pension funds which offer second mortgages do not add interest rate markups for these.
16. What are the disadvantages of pension fund mortgages?
Unlike mortgages from Swiss banks, many pension funds only offer a limited range of mortgage models. SARON mortgages, construction loans, and other more complex financing products are rarely offered. Pension funds also tend to be more conservative in terms of the properties they finance, and often do not accept mortgages for investment properties or holiday homes.
Pension funds are often stricter with regards to creditworthiness checks and collateral requirements. However, this is not a major disadvantage if you have good creditworthiness.
Compared to banks, pension funds typically have less experience with mortgage consultation. Some pension funds even state that customers requiring consultation should count on long waiting times.
Verdict: Are pension fund mortgages recommendable?
Swiss pension funds often have exceptionally low mortgage interest rates, so taking a look at the new offers is definitely worth it. A good second-step is to ask the pension fund in question whether you would even be eligible for a mortgage from them.
Finally, comparing pension fund offers with the cheapest negotiated offers from banks and insurance companies is highly recommended.
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