–
If you want to know as precisely as possible how much home financing will cost in the coming years, you should take out a fixed-rate mortgage, recommends financial advisor Martin Player.
Illustration: Christina Baeriswyl
I asked my bank about a fixed-rate mortgage. Rates are much higher than they were a few months ago. What’s your prognosis? Will we soon have mortgage interest rates of 3 percent? FN reader question
Interest rates here in Switzerland will hardly rise that quickly. But as a homeowner, you have to accept that the days of dirt cheap mortgages are over. Debt financing for home ownership is likely to be more expensive in the future than it has been in recent years. Mortgage interest rates have already risen. This is a consequence of higher capital market interest rates. The 10-year swap rate has gone up significantly. This is available for different terms between one and 30 years and stands for the interest costs for the provider of a mortgage.
Should the Swiss National Bank also raise interest rates at some point, this would send out a signal and mortgage interest rates would probably rise even more. However, it is not that far yet. For the time being, the National Bank is sticking to its low interest rates. It can’t help it: If it were to raise interest rates before the European Central Bank, the franc would be more attractive to foreign investors and would rise – but this is exactly what the SNB wants to prevent, since exports and tourism are suffering from a strong franc.
Due to high inflation in the eurozone, I expect the ECB to raise interest rates this year.
At least the National Bank has recently allowed the Swiss franc to strengthen and has thus somewhat cushioned the inflationary pressure from abroad. This has contributed to the fact that inflation, at 2.4 percent in March, is significantly lower than in our neighbor Germany, for example, where it reached 7.3 percent and even 7.5 percent in April. The SNB is therefore fulfilling its mandate to ensure currency stability. But it probably won’t tolerate a euro exchange rate below parity. You can assume that the SNB will not raise interest rates until the European Central Bank does the same.
Because of the high inflation in the euro zone, I expect that the ECB will take this step before the end of this year. It is therefore quite possible that the SNB will also raise interest rates slightly this year. However, this does not mean that we will soon have high mortgage interest rates of 3 percent, as you mention in your question. Rather, I expect that interest rates will slowly go up step by step.
In my opinion, the trend is clear: it is also going up for mortgage interest rates. For people who attach great importance to the predictability of their home financing, it might be worth linking the low interest rates with a longer-term fixed-rate mortgage. In this way, the interest rate risk can be ruled out at least for a few years.
Interest rate forecasts, like currency forecasts, are difficult and often wrong.
However, you have to be aware that fixed-rate mortgages also have disadvantages. You are then tied for years. If your own life situation changes unexpectedly and you have to sell your house – for example due to a divorce – things get complicated: Getting out of a mortgage early is expensive. In times of heightened uncertainty, like the one we’re experiencing because of the war in Ukraine and rising inflation, many people are looking for planning security. Accordingly, there is a run on fixed-rate mortgages.
Interest rate forecasts, like currency forecasts, are difficult and often wrong. At the moment nobody can tell you exactly where interest rates will be in three to five years. All you have to do is ask yourself whether you can live with the risk of rising interest rates, then you can stay in a cheap Saron mortgage. However, if you want to know as precisely as possible how much your home financing will cost you in the coming years and want to have planning security, I would take out a fixed-rate mortgage.
Despite rising interest rates, you shouldn’t rush to sign the first contract that comes your way, but rather compare offers from banks, insurance companies and pension funds and use comparison services such as Moneypark, valuu or Comparis. Then you have a good chance of finding a lower offer for your mortgage, as this is the best way to take advantage of the competitive mortgage market.
–