Swiss mortgagors collectively pay billions of francs more than necessary for their mortgages every year. However, the most costly mortgage expenses can easily be avoided or minimized by following a few simple rules and avoiding common mortgage mistakes.
1. Falling for marketing gimmicks
Many Swiss banks offer specialized mortgages or discounts designed to appeal to certain types of customers. These include family mortgages, energy efficient mortgages and “start mortgages”. Even mortgages linked to rewards programs are offered.
While discounts are generally a good thing, many mortgagors assume that these discounted offers are as good as it gets and fail to compare the discounted rates with other mortgage offers. In many cases, there are other mortgages available which work out cheaper than these specialized mortgages. It is also important to note that the discounts offered generally apply to a limited amount of time only, so a full cost estimation must also consider the interest rates which apply after the discount period.
2. Choosing the wrong kind of mortgage
The choice between fixed rate mortgages, LIBOR-based mortgages and variable mortgages can be a difficult one. Many mortgagors end up taking out the wrong kind of mortgage or choosing the wrong mortgage term. Choosing the ideal model and mortgage term is not easy because many variables play a role. Getting advice from an unbiased mortgage advisor can be beneficial.
3. Splitting mortgages when it isn’t necessary
Mortgage brokers and providers often advise mortgagors to split mortgages into multiple tranches. While splitting can make sense in some cases, the disadvantages often outweigh the advantages and lead to higher costs.
Separate tranches provide less room for negotiation. Refinancing or moving to another mortgage provider is more complex when your mortgage is split. Calculating the optimal split mortgage is complex and difficult for non-experts. This puts the average mortgagor at the mercy of the lender, which may or may not recommend an option which is in the borrower’s best interest.
4. Not negotiating
Swiss are often reluctant to negotiate, and this bad habit can become expensive in the case of mortgages. Because mortgages involve huge amounts of money, negotiating can easily help you save thousands of francs. Advertised interest rates are often just guide rates and are not set in stone.
Good bargaining skills will do you at least as much good at the mortgage negotiating table as they would at an oriental bazaar. Don’t let a friendly bank representative coax you into signing without negotiating. Their job is to sell you the most expensive mortgage they can get away with.
Your best interests, on the other hand, are getting the cheapest mortgage possible. If a bank is not willing to match your preferred interest rate, consider threatening to take your business elsewhere. Often enough, the bank will bend when threatened with missing out on your mortgage.
5. Being loyal to your bank
Many mortgagors take out a mortgage at their bank’s recommendation. While there is nothing wrong with sticking with your preferred bank if the costs and conditions make sense, many people fail to compare the costs of their bank’s mortgage offer with other available offers.
At the very least, consider getting quotes from other lenders. If another bank offers you a better deal than your bank, ask your bank representatives to match the offer. Often enough, your bank will match other offers rather than lose you as a customer.
6. Forgetting online mortgages
A number of online mortgage providers now operate in Switzerland. On average, online mortgages are notably cheaper than conventional mortgages from banks and insurance providers.
Another advantage is that the interest rates shown online are normally the actual rates which you get – rather than just guide rates. This type of mortgage works well for experienced mortgagors who do not need consultation and for basic refinancing.
7. Not comparing
Swiss mortgagors often fail to compare the costs, terms and conditions of mortgages and simply accept the first offer they come across. This leads to them paying lenders thousands of francs more than necessary.
The comprehensive mortgage comparison on moneyland.ch is the most complete mortgage comparison in Switzerland. It provides a clear overview of interest rates for bank, insurance company and online mortgages. Remember, most of the interest rates show are guide rates which are open for negotiation. Consider getting multiple quotes in order to find the cheapest mortgage for your situation.
8. Working with the wrong mortgage broker
Working with a trustworthy, independent mortgage consultant can save you time and effort, and ideally help you get a cheaper mortgage than you could negotiate on your own.
However, many mortgage consultants receive commissions from lenders. This is one reason why the “best” mortgage recommended to you may differ from one broker to another. Avoid working with brokers which are not up front and transparent about how their business works and about the full costs of mortgages.
9. Terminating mortgages too late
If you want to terminate your mortgage ahead of schedule, you will normally have to pay high penalty fees. But an early refinancing can still pay off if the combined costs of both the penalty fees and the new mortgage are lower than the remaining cost of your mortgage. You can use the moneyland.ch early mortgage termination calculator to find out whether or not refinancing could work out cheaper than keeping your current mortgage.
10. Not repaying your mortgage ahead of schedule
Many homeowners maintain large amounts of mortgage debt because they believe this is beneficial from a tax perspective. But that is not always the case. Amortizing your mortgage can be the cheaper option in many cases – even though your bank may insist that the opposite is true. Don’t forget that the more you owe the bank, the more money the bank earns in interest, so it is in their best interest to encourage you not to pay off your debt.
11. Being too quick to buy a home
Some homeowners would be better off if they didn’t buy a home using a mortgage at all. Depending on your financial situation, buying is not always better than renting. You can calculate whether or not mortgaging a home makes sense in your situation using the moneyland.ch mortgage calculators.