The page you link to says "Last updated 25th November 2008". Probably the variable rates are a little lower now, or they wouldn't be getting much business ( UBS for example is quoting 1.44% for LIBOR 3M variable and 1.71% for 2 year fix).
I agree with you. What is important is not to assess the affordability of a house based on the current rates. I have heard people say so many times 'Now is the right time to buy because the interest rates are low'. But the thing is that, in and around Geneva, housing prices are phenomenally high and they have continued to rise in the past 2 years because they have been fuelled by low interest rates. So yes, a mortgage for a 1.5 million house will today look quite affordable.
Instead of asking: 'Can I afford it now?' you should ask: 'Will I be able to afford it in 2 or 3 or 10 years' time if the interest rates jump to 4 or 5 per cent?' You should also ask yourself if you are prepared to risk ending up with negative equity in case the bubble bursts and the 1.5 million house can not be sold but for 1.3 million a few years from now.
Those who can comfortably say yes to both questions might consider buying and even taking some risk with variable interest rates, as you said in your previous posts.
Couple of points:
1) If you have a Swiss mortgage, check the small print, you'll probably find a nice paragraph which tells you that you maybe subject to a margin call if the back revalues the property - at some point at a lower value!!
2) If you fix at 3% for 10 years, which 6mths ago was costing around 100bps above the 3mth libor curve for that period, then you may end up paying more than on a 3mth libor. HOWEVER, you aren't holding the risk.
3) Purchasing a property, and having a mortgage, is considered a hedge against inflation. The relative value of debt against asset and cashflow should, over time, reduce.
Sometimes it's considered a necessity due to family size and trying to reduce the monthly/annual spend on rent.
How about you add that as #4?
The Swiss calculation is estimated that a property costs its owner 5% per annum - including debt repayment, repairs, insurance, maintenance - and also loss of income on the capital invested.
If your rent is as close to that 5% value then the cost benefit of buying (with all the costs in doing so) becomes narrower.
Aye, maybe. TBH the inflation calculations are a bit beyond me.
The way I see it, have a house and garden for 3 children and about 9 rooms.
My current rent for 5.5 rooms (including garage) is = 2300 CHF.
My interest and amortisation payments* = 2100-2200 CHF
*Using the variable % rate, and accepting that there will be variations year on year. At the moment using LIBOR, so even lower.
This, of course, is before I take into account benefits from reduced taxes, insurances and costs of living outside the city. Travel to work: by tram (so covered by my annual tram pass that I buy at the moment anyway).
As for opportunity cost losses, don't get me started. I've lost more money than I've gained over the past 10 years of investment... Clearly I'm more in the Nick Leeson category than the Bloomberg/Buffet category, so quite frankly, I'm happy to invest in something I can see and use.
1mio chf house
200k deposit
800k mortgage - maximum
400k @ 3% (10yr fixed) = 12k
400k @ 1% (libor) = 4k
Repayment (1-2%) = 8-16k
Insurance - 0.5-1k
Repair/maintain fund @ 1% = 10k
TOTAL per annum = 34.5k - 43k
PCM = 2875-3583chf
That is at CURRENT rates - which are low. The best advice remains to budget 5% per year - in this case 50k pA (4167chf pcm).
An example of this is the unsold house in Meilen I mentioned else where - it was for sale for 1.9m - and the rent is now 6500chf pcm - like for like. I think it is fair to say that the owner is using a pretty similar calculation to what I have above - especially as the market guideline is 5-7% return on investment for rental properties in Switzerland.