Sooner or later you will normally have to extend your fixed rate or LIBOR-based mortgage. Many Swiss homeowners spend more than necessary on refinancing their mortgages by making needless mistakes. Here, moneyland.ch lists key points to follow for affordable mortgage refinancing.
Many Swiss homeowners default to refinancing their mortgage at the bank they normally work with. While refinancing at the bank which issued the original mortgage can be a good thing, it is important to understand that there may be more affordable mortgages available.
Running an unbiased comparison is a good move. You can find the most comprehensive Swiss mortgage comparison on moneyland.ch. Interest rates are updated daily. Interest rates listed in the comparison are updated daily. Note that the given rates for most mortgage offers are guide rates and not necessarily the exact rate you will get.
2. Request quotes
Once you have conducted a primary comparison, it is a good idea to request a number of quotes in order to find the exact interest rates which lenders are willing to offer you. Even if you plan to stick with your bank, getting quotes from other lenders can provide you with leverage which you can use to negotiate a better deal with your current bank.
3. Don’t forget online mortgages
An increasing number of Swiss lenders are launching online mortgages. These are popular for refinancing and have exceptionally attractive interest rates. Consultation is minimal, but in-depth consultation is not usually required when you already have a mortgage. Another benefit of online mortgages is that the interest rates shown are typically the actual interest rates you get, rather than guide rates.
4. Read the fine print
Some banks offer discounted interest rates – but only for new customers. In Switzerland these first time buyer mortgages are often referred to as “start” mortgages. You cannot use these mortgages to refinance an existing mortgage. However, there are plenty of affordable mortgages on the market which can be used for refinancing.
The mortgage market works much like an oriental bazaar: If you don’t negotiate, you lose. Don’t be afraid to push for the best possible deal. Mortgages involve a lot of money, and in the case of long-term mortgages you save up to 10,000 Swiss francs by getting a lower rate. Coming to the negotiating table armed with quotes from other banks or proof of cheaper online mortgages is a good way to start the process. Most banks and insurance companies – with a few exceptions like online mortgages – accept some amount of negotiation.
6. Consider premature refinancing
Depending on your situation and the cost of your current mortgage, terminating your mortgage agreement ahead of schedule can pay off. The penalty fees for early termination are often high. However, if the difference in the interest charged by your current mortgage and the new mortgage is big enough, early termination can pay off in some cases. The early mortgage termination calculator programmed by moneyland.ch automatically calculates whether or not it is worth refinancing your mortgage.
7. Consider locking in interest rates
Depending on prevailing interest rates, it can be worth committing to a new fixed rate mortgage long before your current mortgage term expires. Many banks offer forward mortgages which let you lock in interest rates up to 2 years before the mortgage term begins.
The fees you pay to lock in mortgage rates in advance are the biggest disadvantage of forward mortgages. Aside from the fees, the main factor in determining whether a forward mortgage pays off is the performance of prevailing interest rates. If interest rates drop, you will pay more for your mortgage because you locked rates in above the going rate. If interest rates climb, you will pay less for your mortgage than you would have had you not locked in rates in advance. There is no sure way to know how mortgage interest rates will develop in the future.
8. Choose the right kind of mortgage
Carefully choosing the best mortgage model is just as important when refinancing as it is when you get your first mortgage. Your financial situation plays a deciding role, as do long-term interest rate predictions.
Fixed-rate mortgages are popular when prevailing interest rates are generally low, while LIBOR-based mortgages are popular when rates are more volatile. Mixed mortgages which combine fixed-rates and LIBOR-based rates can make sense in specific situations. However, using combined mortgage models can pose difficulties when you switch to another mortgage or lender in the future, and this makes them a poor choice in many cases.
9. Choose the right loan amount
Refinancing a mortgage provides a good opportunity to take a closer look at your outstanding mortgage. For example, it could make sense to amortize part of your mortgage early – depending on your financial situation and prevailing interest rates. On the other hand, paying off your mortgage early does not make sense if you can invest the money and earn a yield higher than the amount you would save on interest.
10. Beware of expensive brokers
Many mortgage brokers ply their trade in Switzerland. Unfortunately there are some unscrupulous brokers which are more interested in profits than in their clients’ well being. Commissions paid out to brokers by banks and insurance providers for the sale of mortgages can create a conflict between the interests of the broker and those of the client.
On the other hand, the right mortgage broker can save you time and effort, provide useful consultation and help you get the best possible offer. In the case of refinancing, using a broker is not always better because most brokers only offer mortgages from a limited number of lenders. Honorary consultants which charge you a fee in exchange for consultation can be a good alternative to brokers. In the best case they will provide unbiased advice and even pass on any sales commissions they receive to you.
11. Get informed ahead of time
Getting to know the details ahead of time is important in the case of all of the points mentioned above. Review your contract to find out whether or not a notice period applies, and how long the notice period is. If you wait to compare offers until your notice period is about to expire, it may end up being too late for a favorable refinancing. In the worst case, you may have to refinance your existing mortgage with an expensive variable mortgage until you can find a suitable fixed rate mortgage or LIBOR-based mortgage.