Liberty News - What is important to consider when refinancing a mortgage?
Many mortgage borrowers opted for a long-term mortgage years ago. But now it must be renewed. However, interest rates have risen in the meantime. So what's the best way to renew a mortgage?
Sooner or later, a fixed-rate or Saron mortgage must be extended. However, many Swiss homeowners pay too much for the redemption of their mortgage, knows Benjamin Manz, managing director of the comparison service moneyland.ch. It is therefore important to follow a few tips, he says. Moneyland.ch has compiled the most important tips for a favorable extension.
It is worth to compare
Many Swiss homeowners have their mortgage automatically extended by their bank. «In principle, there is nothing wrong with a redemption at the previous bank. However, there are often other providers with even more favorable mortgage offers», Manz points out.
After an initial comparison of the benchmark interest rates, one should obtain concrete offers with the effective interest rates, advises Manz: «This can also be worthwhile if one wants to stay with the house bank with the mortgage. Chances are good that you can get even better conditions from your own bank with more favorable offers from competing mortgage providers.»
Do not forget online mortgages
More and more Swiss mortgage providers are launching online mortgages. These are particularly popular for redemptions and entice customers with especially favorable interest rates. It's true that advice on online mortgages is kept to a minimum. «However, those who already have a mortgage usually no longer need in-depth advice», says Manz. And he lists another advantage of online mortgages: The published interest rates usually correspond to the effective interest rates, so they are not mere window prices.
Check interest offers carefully
Some banks entice customers with special interest rate offers that on closer inspection, apply only to new customers. «Often, such discounts are also called starter mortgages, which do not apply to renewals. But don't get mislead: there are enough favorable offers on the market for refinancing as well», explains Manz.
Negotiation is important
«The mortgage market works like a bazaar: If you don't negotiate, you will pay more», Manz continues. He therefore recommends haggling over the best price for mortgages: «After all, a lot of money is at stake - with long-term mortgages, the savings potential can quickly amount to more than 10'000 swiss francs.» Competitor offers or the indication that certain online mortgages are even more favorable offer a good basis for negotiation. And negotiating is possible with most banks and insurance companies, he adds, with a few exceptions, such as online mortgages.
Consider early replacement
Depending on the interest rate situation and ongoing mortgage costs, an early exit from the mortgage contract may be worthwhile, Manz further advises. It is true that the penalty fees are often high. But: «If the interest rate difference between the mortgage to be redeemed and the new mortgage is large enough, an early exit can be worthwhile in rare cases», says Manz.
Consider interest rate fixation
Depending on the interest rate situation, it can also be worthwhile to conclude an extension at a certain interest rate months before the end of the contract, Manz adds. Many banks offer forward mortgages, which allow interest rates to be fixed up to two years in advance. «The disadvantage of forward mortgages is the fees because interest rate hedging comes at a price», Manz admits. Whether a forward mortgage is worthwhile depends not only on the fees but also on the interest rate forecast: «If interest rates fall, you pay less with a forward mortgage. If interest rates rise, you may benefit. A cost risk remains since no one knows for sure how mortgage interest rates will develop in the future.»
Choose the right model
As with a new mortgage, it is also important to choose the best individual model when paying off an existing mortgage. According to Manz, this depends on the one hand on the financial situation, but above all on the longer-term interest rate outlook. In a low interest rate environment, he says, fixed-rate mortgages with long maturities are particularly popular, while Saron mortgages are also popular in a more volatile interest rate environment. Mixed mortgages combining fixed-rate mortgages with Saron mortgages could make sense in individual cases. However, such model combinations would make it difficult to switch to another provider in the future and are therefore usually not recommended, says Manz. And he adds, «Historically, Saron mortgages, or Libor mortgages in the past, were often cheaper than fixed-rate mortgages.»
Choose an appropriate mortgage amount
The redemption of a mortgage is a good time to review the existing mortgage, says Manz. Depending on the financial and interest rate situation, for example, it might be worthwhile to continue paying off the mortgage early. But, he adds, «It's not worth paying off early if you can invest the money elsewhere at a better interest rate.»
Beware of expensive intermediaries
Manz also warns against expensive brokers: «There are now many Swiss mortgage brokers on the market. Unfortunately, there are also those who are more interested in their own well-being than in that of their customers. One possible conflict of interest is the brokerage commissions that the brokers receive from the banks or insurance companies.» It is true that a good mortgage broker can have the advantage of taking on work, offering helpful advisory services and organizing favorable offers. «However, especially for redemptions, going to an intermediary is not always cheaper, especially since most intermediaries only have a selection of mortgage providers in their portfolio. Recommendable can be good fee advisors: Here you pay for the advice but ideally receive independent advice and also the brokerage commission back.»
Inform yourself early
Manz points out that you should inform yourself early and check the contract to see how long the notice period is. If you don't start the settlement until shortly before the end of the notice period, it may already be too late for a favorable redemption: «Then you may have to switch to an expensive variable mortgage to bridge the time until the redemption.»