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Home Ownership. We accompany you along the path to your own home.

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Home Ownership We accompany you along the path to your own home. Contents Zuger Kantonalbank your financing partner Build on our experience 2 Basic information about buying a home Choose
Home Ownership We accompany you along the path to your own home. Contents Zuger Kantonalbank your financing partner Build on our experience 2 Basic information about buying a home Choose a home that meets your requirements 3 Legal aspects Inform yourself in good time about the most important legal aspects 5 Basic information about financing Prepare a comprehensive financing plan 6 Finance your home with Zuger Kantonalbank Draw up an individual financing solution with us 9 Insurance Insure yourself against unforeseen events 10 Glossary Avoiding misunderstandings 11 Build on our experience Zuger Kantonalbank is your professional partner on the path to your own home. With us you benefit from comprehensive know-how and short-term decision-making processes. Thanks to our local roots you will also be able to enjoy a home advantage. If you want to realise your dream of owning your own home, at Zuger Kantonalbank you can count not just on attractive financing products, but also on well-founded advice. For most people, buying their own home will be the biggest investment and one of the most important decisions in their lives. For this reason it is worth knowing that you have an competent partner at your side. We will help you place your dream of your own four walls on solid foundations. At Zuger Kantonalbank, our focus is placed on your needs. Only once we know your current life situation and future plans, we can draw up a solution that is tailored to your requirements. The financing of residential property does not constitute a single isolated project. We would be happy to show you how a wide variety of topics come into play here and can be optimally tailored to one another. Your Zuger Kantonalbank advisor will support you from the outset with commitment, experience and expertise. And he will continue to provide you with advice and support after the purchase has been made. This brochure is designed to guide you through this complex topic and contains answers to the most important questions concerning the purchase of a home. Please also consult the glossary on the last page and the enclosed checklist. We look forward to accompanying you along the path to your own home. 2 Choose a home that meets your requirements The question of what characterises good residential property can only be answered individually. However, every decision has an impact on the price over a long time. Before you choose a home of your own, you need to think carefully about whether this property will meet your needs. For this reason you should consider not just aesthetic or price aspects, but also review your lifestyle, preferences and habits and ask whether this investment in your future will also be a source of pleasure in the long term. Location and setting The location and setting are the two most important price criteria for a property. You need to consider the residential quality and quality of life at your chosen place of residence as well as the actual setting at this location (e.g. built on an incline, road noise etc.). Other factors such as your commute to work or the route to school also play an important role and will exert an impact on the cost of living, the tax burden or the resale value. Important criteria when it comes to choosing a location Distance to public transport Distance to kindergarten / schools / shops Direction the property faces / sunlight Views Emissions (noise / odours / exhaust fumes) Tax base Types of residential property Owner-occupied apartment In the case of an owner-occupied apartment (also known as condominium ownership), the condominium owner is simultaneously the co-owner of a multiple occupancy building and the sole owner of a specific apartment including cellar and possibly also a parking space. All other facilities belong to the community of owners, which is collectively responsible for their maintenance. The rights and obligations of the condominium owner are set out in the utilisation and management regulations of the property, and need to be studied carefully before the purchase is finalised. Terrace house Another popular form of residential property is the terrace house. The number of immediate neighbours particularly if the property is not located at the end of a terrace and any possible shared facilities call for mutual consideration. However, this form of residential property offers many advantages for families. Semi-detached house This form of residential property uses less land than a freestanding house. Plant and equipment costs, if the land is used efficiently, remain correspondingly lower. Owners live independently, yet at the same time within a community. Because certain facilities such as the drive, garage, garden or heating system are shared, and many decisions have to be taken jointly, the parties need to be compatible. Detached house This promises independence and facilitates individuality for the large-scale design of both house and garden. Advantageous sunshine exposure, nature at the doorstep and generally lower emissions are not just desirable but also tend to be pricey as private living space has become expensive, demand is high and good land is rare. 3 Should you buy a turnkey property or build your own? However you decide to approach this issue, we recommend that you first obtain a clear picture of your desires and financial options. In a second step, find out about current offers, providers and possible strategies. View properties that have already been realised and meet your wishes, and choose your future construction partner with care. Buying a turnkey home If you wish to buy a property that already exists, we recommend that you take a construction expert along to the inspection. Particularly when buying an older property, you need to ascertain how much renovation and possible conversion work will need to be carried out. Self-build Self-build does not mean that you actually do all the building work yourself but that you make the right decisions. To this end it is important to pick the right architects and suitable craftsmen, to inform them precisely about your wishes and desires, and to draw up a detailed architect agreement stipulating the rights and obligations of both parties. Today, general or full-service contractors are often commissioned to build residential properties. In such cases, while you remain the client, you will need to check the reputability of the contractor carefully because you will be assigning responsibility wholly or in part to a third party. This means you can rest assured that the invoices of the craftsmen will be paid, the standard of the building work will be meet your expectations, and that all conditions will be adhered to from the outset. Based on our experience and knowledge of the market, we can provide you with sound advice and help you to choose your construction partner. Responsibilities of the construction partner Architect General contractor Full-service contractor Designs the project and oversees the construction work. As the client, you sign a contract with the architect. You sign contracts for work and services with the individual building contractors or craftsmen. As the client, you sign a contract for work and services with the general contractor. This covers the execution of the construction project excluding project management and supervision of the construction work. As a rule, an architect will be appointed for these latter tasks. Assumes the project management and supervision of the construction work as well as overall responsibility for the execution of the construction project. Today, many of the firms that call themselves general contractors are actually full-service contractors. 4 Inform yourself in good time about the most important legal aspects Purchase and building law Purchase and purchase agreement The purchase is the method customarily used to transfer real estate property. It is established legally only when the purchase agreement is drawn up in the form of a public deed and recorded in the land register. The land register records all real estate properties, detailing the ownership relationships, dimensions as well as the rights and encumbrances pertaining to the property. Building law and building law agreement Instead of buying building land, you can alternatively acquire a building law. A building law establishes the right to erect a building structure on land belonging to a third party, and to hold this in the form of individual ownership. The building owner (building lessee) compensates the landowner (building lessor) by paying a building lease charge. This can be fixed for a defined period or adjusted by indexing or revaluation to reflect changed circumstances. The building law constitutes an easement on a real estate property. If the building law has been established independently and for a period of more than 30 years, it can be entered in the land register as a real estate property. In this case, the lease agreement must be drawn up in the form of a public deed. A lease may be established for a maximum period of 100 years. Reversion Depending on the contractual provisions set out in the building law agreement, the building structure will revert to the landowner when the building law expires with or without compensation for the building owner. When drawing up the terms of the building law, the parties may stipulate that subject to certain conditions they wish to negotiate a new building law before the existing lease expires. Matrimonial property regime Form of property ownership Before buying a home, spouses need to decide whether they wish to acquire this jointly or only in the name of one spouse. If they have not already settled their marital property and inheritance provisions, the acquisition of a home should be seen as a good opportunity to do so. Cohabiting couples should buy the property as equal co-owners. This will enable each co-owner to contribute their own pension assets for the purchase or amortisation (which is not possible in the case of collective ownership). If cohabiting couples buy equal shares in a property, it is important that they also contribute the same amount of capital. If one partner contributes 80 percent and the other only 20 percent, and they nevertheless buy the property as owners of equal shares, this may among other things be viewed from a tax perspective as a gift of 30 percent from one partner to the other. For this reason it is advisable to specify the effective ownership ratio as 3 /5 and 2 /5 co-ownership. An even simpler approach is to settle such matters with a loan agreement. Types of ownership of residential property Sole ownership Co-ownership Collective ownership As sole owner you will have the greatest possible freedom. You can dispose of the real estate property without restriction within the framework of the law. Sole owners can be natural persons or legal entities. A property can also be owned by two or more persons. Each co-owner has the rights and obligations of a sole owner in respect of their particular share. Each co-owner can sell or pledge their particular share. However, by law co-owners have a pre-emptive right to the shares of the other co-owners. Collective owners jointly form a community and can only dispose of the real estate property jointly. Frequent cases: communities of heirs, matrimonial community of property or a simple partnership. In contrast to co-ownership, no shares of the assets are separately attributed. 5 Prepare a comprehensive financing plan How much will cost your home? The financing should be prepared and planned in every detail. Firstly, you need to acquire a clear understanding of the financial consequences. This is because home ownership costs consist not just of the purchase price and mortgage payments. Investment costs In order to avoid unwelcome surprises, you need to include the following investment costs in your calculations before the start of construction work: In the case of a newly constructed building: Land costs (including access), planning and preparatory works, building costs, landscaping costs, fees, building insurance, cost of construction loans In the case of an existing building: Purchase price and any possible renovation/conversion costs Recurring costs Home mortgage interest rates and amortisations are the largest annual costs. Through amortisation (repayment of part of the mortgage) you offset the reduction of your retirement assets and create reserves for future investments. In addition, you reduce your financial commitments when you get older, when your pension income will be lower than your current earned income. Depending on the age and condition of the property, service charges and maintenance costs normally amount to between 0.7 % and 1 % of the purchase price. You also need to think forward and set aside reserves for renovation as well as to replace machinery and equipment. In the case of condominiums, the owners regularly pay into a renovation fund. However, this fund is used only to renovate the shared areas of the property. One-time costs Real estate transfer tax Notary s and land register fees Costs of establishing liens Fees (e.g. for utility connections) Further costs are often also incurred that were not expected in advance: Planning permission fees, depending upon complexity One-time and separate taxation of pension assets Inheritance and gift tax Furnishings (furniture, lamps, curtains) Tools and equipment (for house and garden) Garden furniture, parasols, shelves and cupboards for cellar and garage Moving expenses The acceptability of risks rule When it comes to determining whether your home is acceptable of risks, the simple rule of thumb is: All costs for home mortgage interest rates, amortisation, possible loan costs, maintenance costs and service charges (heating, electricity, water, repairs etc.) should not exceed one third of your gross income. To ensure that the acceptability of risks criterion can be determined not only on the basis of a current interest rate, but also from a long-term perspective, Zuger Kantonalbank applies an average interest rate currently amounting to five percent. 6 How will you finance your home? Now you know how much your future home will cost, the question arises of how you intend to finance this. As a rule, the capital used to acquire residential property consists of two parts: your own capital (your contribution) and outside capital (mortgage financing). Own capital In order to ensure that the purchase of your new home will not be an excessive financial burden, you should finance at least 20 percent of the market value with your own capital. In addition, you can increase your own capital with credit balances from the so-called 2nd pillar (e.g. pension fund, vested benefits account) or 3rd pillar (e.g. 3rd pillar savings, policies). There are two drawbacks if you wish to arrange for pension fund assets to be paid out: The payout incurs tax and the insured benefits will be reduced (the precise provisions will be set out in your pension fund regulations). In addition, an alienation restriction will be recorded in the land register. You can avoid these drawbacks by pledging your pension fund assets to the bank. Within the framework of the pledged assets on the second mortgage, you will be able to benefit from a more favourable interest rate. If your own capital still fails to amount to 20 percent or if your income is too low, try to increase your own capital by taking out a loan, a gift or an advancement of inheritance. Outside capital You will receive the remaining 80 percent of the necessary capital from us, insofar as the acceptability of risks criterion has been met, in the form of mortgage financing. Depending on the sum involved, this can be divided into a first mortgage (approximately two thirds of the market value) and a second mortgage that will be paid back in 15 years (at the latest when you reach retirement age) in periodic amortisation instalments. Division of financing 100% 80% 60% 40% 20% 0% Own capital 20% Outside capital 80% 2nd mortgage from 67% to 80% 1st mortgage till 67% Use of pension assets 3rd pillar savings (pillar 3a) Early withdrawal Advantages lower mortgage financing lower interest burden Pledging Pension fund (2nd pillar) Early withdrawal Pledging additional tax savings capital remains in pillar 3a and continues to accrue interest preferential interest rate for second mortgage lower mortgage financing lower interest burden additional tax savings continued full entitlement to 2nd pillar insurance benefits preferential interest rate for second mortgage Disadvantages no additional tax savings, consequently lower liquid assets capital tax on early withdrawal higher mortgage, consequently higher interest burden no additional tax savings lower insurance benefits capital tax on early withdrawal higher mortgage, consequently higher interest burden 7 How do you wish to amortise your mortgage? When it comes to repaying the mortgage debt, you can choose between two variants: You can either reduce the mortgage (and consequently the interest burden) directly, or you can amortise it indirectly via a Zuger Kantonalbank 3rd pillar savings account (savings 3 account), thereby profiting from additional tax benefits. Direct amortisation The sum is repaid to the bank in annual instalments. This way you reduce your mortgage year by year, and consequently the financial burden of the mortgage interest as well. Indirect amortisation In this case the amortisation sum is not repaid to the bank but instead paid regularly into the 3rd pillar. As a consequence, the mortgage debt does not decline, and the debt interest remains unchanged. You earn attractive returns on the 3rd pillar credit balance, thereby enabling you to expand your retirement provision. Indirect amortisation allows you to enjoy double tax benefits. In your tax return you can deduct in full the sums you pay into the restricted 3a pension plan from your income. And because the level of debt interest remains constant, you can also make maximum use of this tax deduction. Direct amortisation Mortgage in CHF Indirect amortisation Mortgage in CHF Years Years 8 Draw up an individual financing solution with us It is not always easy to decide which form of financing is the right one. We therefore draw up a tailored solution with you that optimally reflects your personal circumstances and the current interest situation. While doing so we also show you how you can combine different mortgage products. In the following section we present the most popular products. Construction loan This loan is used to finance the construction phase of a new building or conversion. You forward the incurred construction invoices to your customer relationship manager, enabling the payments to be settled from the construction account. The construction loan constitutes a current account loan only once the contributed own capital has been used up. Once the construction work has been completed, the loan is converted into the desired mortgage model (consolidation). Variable rate mortgage The interest rate is continually adjusted in line with developments on the money and capital markets. These can cause interest rates to fall or rise, making it difficult to budget precisely. Fixed rate mortgage This is taken out for a specific period of time at a fixed interest rate, making it possible to budget carefully. As a result, the risks of an interest rate hike can be avoided. Further mortgage models In addition to the two conventional mortgage models, we also offer other forms of mortgage. We would be happy to inform you about the ideal solution within the context of a financing proposal. 9 Insure yourself against unforeseen events Regular payment of the mortgage interest is not a problem for you. But what would happen in the event of loss of earnings due to illness, accident or death? With a thorough analysis of your retirement provision an
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