A home owner in Zurich paid interest on his LIBOR mortgage for years in spite of the fact that the LIBOR was in fact negative. Now, he is demanding reimbursement of more than 100,000 Swiss francs. Based on a recent ruling by Zurich’s high court, that may actually happen. The home owner may get back the markup he paid over the LIBOR.
Can you also reclaim mortgage interest which you have already paid? moneyland.ch answers the most important questions here.
Which mortgages are affected?
The mortgages in question are LIBOR mortgages which were opened before the LIBOR fell below zero percent. This applies to mortgage contracts signed before the year 2015. Some mortgage agreements did not account for the possibility of the LIBOR becoming a negative rate.
Why would mortgagors pay interest when the LIBOR is negative?
Banks add markups to the LIBOR reference rate. If, for example, the LIBOR is 0.5% and your bank’s markup is 0.5%, you will pay 1% interest on your mortgage.
When the LIBOR became negative, many Swiss banks instated zero percent LIBOR floors. This means they used 0 percent as the base rate instead of the negative LIBOR. Example: If the LIBOR were negative at -0.7 percent and the bank’s markup were 0.4 percent, the bank would charge interest at the rate of 0.4% rather than -0.3 percent.
Can I reclaim interest which I’ve already paid on my LIBOR mortgage?
According to attorney Harald Bärtschi, head of the ZHAW School of Management and Law, that may be difficult. In the case involving the Zurich homeowner, it is primarily up to them as the mortgagor to provide proof that they also did not retroactively agree to a zero percent LIBOR floor.
If the bank delivered written information about the way in which its markups are calculated to its customers, that would according to Zurich’s high court suggest that the mortgagor agreed to a zero-percent floor – even if this was not included in the original mortgage agreement.
In reply to a query from moneyland.ch, Bärtschi explained that the agreements between the parties involved are always the deciding factor. In the event of disputes, each case must be looked at individually. The question here is how far involved parties can simply rely on assumptions as per the good faith principle. The good faith principle requires that a contract be written in a manner which matches the interpretation of the agreement by the other party.
Which mortgage agreements have the best chances of being eligible for interest refunds?
Mortgage agreements which do not include clauses which limit the downward movement of the base rate or in any other way secure the lender’s markup have the best chances of being eligible for reimbursements. According to Bärtschi, reimbursements are most likely to be considered if the possibility of negative rates already existed at the time that the contract was signed. This could have been the case up to the end of 2014, at the latest.
Do rights to dispute interest charges expire?
Yes, the standard period during which you can dispute interest charges is normally five years. Bärtschi clarifies that for contractual reimbursements, the expiry period is ten years. The farther in the past an interest payment was made, the higher the chance that the terms and conditions do not clearly account for negative interest rates is. At the same time, the older the agreement, the higher the likelihood that the dispute period has expired.
Additionally, a federal court ruled that even incorrect charges to bank accounts are considered to be accepted if the account holder does not dispute the transaction within the period stated in the terms and conditions. Typically, the contractual dispute period is one month. Bärtschi explains that in some cases, if a customer does not dispute a change to the contract, the contract can be changed without their direct consent.
What steps should I take as a mortgagor?
If you suspect that you were subjected to interest charges which were not in accordance with your mortgage agreement, you have to proactively dispute the transactions. If the bank insists that the interest charges were justified, you can open a legal case for the reclaiming of the interest payments. According to Bärtschi, doing this only makes sense if your mortgage agreement does not leave any allowance for the charging of the markups independently of the actual LIBOR.
More on this topic:
SARON mortgage questions and answers
Swiss mortgage interest rate comparison
