Situation Assessment

As the maturity of your mortgage approaches, you can reassess the existing financing and adapt it to your current situation. Bank customers often wait until the end of their mortgage loan to renew it: if the initial conditions still meet their expectations, it makes sense to continue the contract. But the economic and monetary environment evolves, as does your personal situation, and it is important to consider all the present and anticipated parameters to best adjust the terms of your refinancing.

Recently, Switzerland has experienced an inflationary period following the Covid-19 health crisis, which has had a significant impact on the mortgage market. The Central Bank has raised its key rate five times, moving it from -0.75% to 1.75%, ending nearly eight years of negative rates. It was only very recently that the institution surprised by lowering it to 1.50%. Nevertheless, the cost of mortgages has increased by 2 to 2.5 times compared to January 2022. Faced with this situation, many borrowers have opted for shorter financing options to take advantage of relatively favorable interest rates while maintaining the possibility to extend their mortgage under better conditions in the future.

What is the Right Time?

Fixed-rate mortgages can only be replaced when they mature. If you decide to terminate your fixed-rate mortgage early, in most cases you will have to pay a hefty fee known as an "early termination fee". The same applies to SARON mortgages, which usually have a three- or five-year framework contract and can therefore only be terminated early at a high cost.

In the case of a variable-rate mortgage, which is generally more expensive than a fixed-rate or SARON mortgage, transferring to another provider is simple: as there is no minimum term, your mortgage can be replaced with a notice period of three to six months, to be considered on an individual basis.

What are your different options at renewal?

a- Extend without modifications: this option requires fewer formalities than signing a new mortgage loan, as the bank already has all the necessary documents available. Given the amortisation, the mortgage debt has also been reduced.

b- Increase the loan amount: If you choose to extend your mortgage, you also have the option of increasing the amount of the loan to give you greater flexibility for, for example, renovation work on your property (which may be tax-deductible), a donation to your children (perhaps you want to help them become homeowners too) or the purchase of a secondary home.

c- Reduce the loan amount: amortising your mortgage allows you to save on mortgage interest but may result in an increase in tax charges and limit financial capacity, particularly in retirement. An indirect mortgage repayment is here the best choice; it consists of depositing the amount of the amortisation into your 3rd pillar. This solution is financially more attractive than a direct amortisation.

d- Adjust your strategy: depending on the evolution of your situation, another type of mortgage loan may be appropriate. Arrangements are sometimes put in place (including during the contract if penalties are not deterrent) aiming to spread the loan among several products with different maturities.

e) Choose a more suitable lender: mortgage interest rates vary from bank to bank. So this is the ideal time to compare all the offers and go to another bank that offers you better terms than your current lender.

The 7 Mistakes to Avoid

1- Starting too late
A common mistake is not preparing early enough when the time for mortgage renewal approaches. It is essential to anticipate as much as possible, ideally 12 to 18 months before the deadline, to calmly consider all opportunities, assess new needs, and negotiate well. In addition, most financial institutions impose a cancellation period of 3 to 6 months, depending on the bank's framework contract.

2- Not comparing offers
Neglecting to compare market offers is a widespread mistake. Eight out of ten buyers wait until the last moment without bothering to compare them. It's unfortunate not to take this opportunity to leverage competition and choose the most financially advantageous formula.

3- Not choosing your mortgage model
Depending on the current and anticipated market conditions, you have the choice between fixed-rate mortgages, SARON mortgages (which periodically adjust to changes in the monetary environment), or even variable-rate mortgages in anticipation of a possible drop in rates or a sale.

4- Not considering the evolution of your situation
Have you started a family, advanced in your career, retirement is imminent, your children have become financially independent, you plan a donation? Be aware that different options exist during the renewal of your mortgage to precisely respond to your new personal circumstances and plans.

5- Allowing too little financial leeway

We recommend considering various unfavorable scenarios that might occur during life (interest rate increases, family or professional events, etc.) and thus adapt your financial capacity in anticipation.

6- Ignoring deadlines and cancellation fees
The conditions differ according to the lenders, and it is crucial to ensure the contractual terms of the signed mortgage (fees, interest rates, repayment terms, penalties...) before going further in the process of renewal or early termination.

7- Not engaging with an advisor
We advise starting to prepare the renewal of your mortgage about 12 to 18 months before the expiration date. This gives you enough time to explore the various options available, evaluate your needs, and gather the necessary documents to make informed decisions. By turning to expert professionals such as those at Resolve, you can be better prepared and benefit from their know-how in terms of financing, risk analysis and tax optimisation, with the certainty that they will defend your interests in a neutral and transparent manner.