Mortgage: Many models, many options

An overview of the models and helpful tips for a real estate financing solution that fits

Tips for finding the best mortgage

Mortgage loans are not a book with seven seals. Here, we give you an overview of the models and helpful tips for a real estate financing solution that fits.

Before you request a mortgage offer from a Swiss bank, you should be aware of how much money you can invest from your own resources and – accordingly – how high your borrowing requirements are. You also have to estimate the amount you can invest for habitation each month. Depending on the anticipated interest rate development, you must also decide for how long you want your interest rate to be fixed.

The models

The mortgages offered on the Swiss credit market can be divided into four models: Variable mortgage, fixed-rate mortgage, flex rollover mortgage (Libor mortgage) and special mortgage. Your risk tolerance or wish for security is also a factor in your decision.

The variable mortgage has no fixed term and an interest rate that automatically adjusts to capital market development. It is suitable for home buyers who want to stay flexible and retain the option of switching to a different mortgage model at any time. With a fixed-rate mortgage, the interest rate is fixed for the entire term of the mortgage when the contract is signed. These mortgages are available with terms between one and 15 years at Swiss financial institutions – the longer the term, the higher the rate. Ideal for home buyers who want to secure the currently low rate of interest for the entire term, and who expect interest rates to rise. A flex rollover mortgage, also called Libor mortgage, is a combination of variable and fixed-rate mortgages. It usually offers a fixed term, and the variable interest rate is adjusted to Libor (Libor = London interbank offered rate) either monthly or every three or six months, depending on the model in question. By paying a premium, you can guard against strong interest rate increases with an interest rate ceiling (cap). Special mortgages include combinations of variable and/or Libor mortgages with fixed-rate mortgages, or mortgages with an interest bonus for first-time buyers or for properties built according to ecological standards (eco mortgages).

The right choice

The interest rate should not be the only factor when deciding on a fixed-rate mortgage. After all, you will be contractually bound to the financial institution for the entire term of the mortgage, and will only be able to opt out ahead of time by paying an early repayment premium. This makes it essential for you to analyze both your initial situation and your future needs prior to signing a contract. If you intend to sell your property, your fixed-rate mortgage should not run longer than to this point in time. The future buyer can, but doesn’t have to take over your fixed-rate mortgage, and your bank can also withhold its consent.

By combining mortgages with different terms, you can prevent having to renew your mortgage for the full sum in a high interest rate environment. For an additional fee, you can also fix a fixed-rate mortgage’s interest rate in advance – up to two years before the actual payment. This can be advantageous if you expect the interest rate level to be higher on the end or renewal date of your mortgage.

When choosing the financial institution for your mortgage, you should base your decision not merely on the best offer, but also on your gut feeling. Which bank makes you feel that you will be in good hands? Collect several offers and negotiate with the banks. If you feel uncomfortable doing this or don’t have the time, you can hire an independent financial advisor for the task.

The fine print

Having a look at the contractually agreed right of termination can prevent nasty surprises. With fixed-rate mortgages, Swiss banks can exercise their right of termination if your income is lowered by parental leave, short-time working, salary reduction or termination. Once the bank has terminated the mortgage, it will demand an early repayment charge, just as it will if you – the debtor – terminate. This will be expensive not merely because of the negative interest. It is also annoying for the debtor to be forced to take out a new mortgage at the current and possibly higher interest rates.