Money blog: Cheap mortgages – should mortgage terms be staggered?

Our expert says which mortgage models currently make sense and what should be considered with regard to the terms.

Record-low interest rates that remain: The Saron mortgage currently offers more favorable terms than a fixed-rate mortgage.

Illustration: Christina Baeriswyl

We have two ten-year fixed-rate mortgages and one Libor mortgage with Migros Bank. The fixed-rate mortgage will expire next year, along with the Libor mortgage, and we’re looking at ways to renew it. Our intention is to get a single mortgage out of these two mortgages and 100000 francs to amortize. Our bank offers us a ten-year fixed-rate mortgage, the interest rate of which, however, does not seem so attractive to us. We wonder if we really want to get a Libor mortgage for more than half the debt and if it is wise that both mortgages will then expire in the same year. Readers question from MR

The Libor mortgage is being phased out. At the end of next year, the Libor will no longer be used as the reference interest rate. The saron then takes its place. This abbreviation stands for Swiss Average Rate Overnight, is also a reference interest rate and is based on the transactions and binding prices of the Swiss repo market. If you want to take out a money market mortgage again, it will no longer be a Libor but a Saron mortgage. (Read herewhat switching to the Saron mortgage means.)

However, the interest rates are largely the same, as you can see using the Saron rate on the portal of the Swiss stock exchange operator Six. Your risks also remain the same: when you take out a money market mortgage, you bear the full interest rate risk. As soon as interest rates rise, it quickly affects your mortgage. You would have to pay the bank more interest.

With a fixed-rate mortgage, you are protected against a rise in interest rates for the specified term. So you have to ask yourself how high you rate the risk of an interest rate rise. For now, I expect interest rates to remain at record low levels. The Swiss National Bank is currently unable to turn the interest rate screw. If it did, the Swiss franc would be even more attractive and would rise, which the SNB wants to prevent. The European Central Bank has loosened its monetary policy again because of the corona crisis and has signaled that interest rates in Europe will remain very low for some time in view of the recession. The governments of the EU countries are also not interested in higher interest rates due to the increased mountains of debt.

If the mortgages expire in different years, it is difficult to switch banks.

With a Saron mortgage, you benefit from very low rates, but you have to ask yourself whether you can and want to bear the interest rate risk described. From my point of view, the risk of a rise in interest rates is currently well tolerable and therefore I would currently prefer a Saron mortgage to a fixed-rate mortgage, especially since you write to me that the offer you have for a fixed-rate mortgage is not really tempting.

Another question is if your mortgages later expire at the same time is a problem. From my point of view, it’s a plus. In times of sharply rising interest rates, staggering terms makes sense. But in phases of low interest rates, I would not stagger the terms, but deliberately schedule them so that the mortgages expire at the same time. This gives you more leeway in negotiations with the bank. If the mortgage expires in different years, it is difficult to switch banks. If mortgages expire at the same time, however, you can compare the terms and conditions of the various institutes, which I advise you to do, and rather switch. Because your bank knows this, it is likely to offer you lower terms in such a constellation.

Other interesting posts from the money blog:

What does switching to Saron mortgage mean?

Can the bank refuse to raise the mortgage?

Get into debt to save taxes?

Posted today at 4:45 am

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