How to Replace a Mortgage

Sooner or later, the term of your fixed-rate mortgage will come to an end. Unless you can and want to repay your remaining mortgage debt in full, you will have to either replace your mortgage with a new one from a different lender or renew your mortgage with your existing lender.

But many Swiss homeowners spend more than necessary for replacing or renewing their mortgage because they fail to pay attention to a few key points. Below, moneyland.ch lists the most important tips.

1. Compare offers

Many Swiss homeowners automatically renew their mortgage with their existing bank. In principle, there is nothing wrong with renewing your mortgage at your existing mortgage lender. But there is a high chance that there are other lenders with cheaper mortgage offers.

You may be able to save a lot of money by comparing offers to find the cheapest mortgage for your needs. You can find a comprehensive Swiss mortgage comparison tool on moneyland.ch. Interest rates are updated daily. Be aware, though, that the rates shown for most banks and insurance companies are advertised guide rates, and not the exact interest rate you will get.

2. Get quotes

After an initial interest rate comparison, a good next move is to get quotes with the actual interest rates that would apply to your mortgage. Even if you prefer to renew your mortgage with your existing bank, getting quotes from other lenders can still be beneficial. There is a good chance that your existing bank will give you a better offer when confronted with more favorable mortgage quotes from other lenders.

3. Do not forget online mortgages

A growing number of Swiss mortgage lenders are launching online mortgage offers. These offers are popular for replacing expiring mortgages, and have exceptionally favorable interest rates. The downside is that you get very little consultation. But if you already have a mortgage, you often do not need in-depth mortgage consultation. Another advantage of online mortgages: The advertised interest rate is generally the actual interest rate you will get, and not simply guide rates.

4. Negotiate

The mortgage market is a lot like a bazaar: If you do not bargain for a better deal, you will pay more than necessary. Do not shy away from actively negotiating the interest rate to get a better price. Remember that the amounts of money involved are large. In the case of long-term mortgages, even a relatively small reduction in the interest rate can easily save you more than 10,000 francs. Getting favorable mortgage quotes from other lenders or referencing the favorable interest rates of online mortgage offers will give you a good basis for negotiating a better deal. With a few exceptions (online mortgages, for example), most banks and insurance companies are open to negotiating mortgage conditions. The moneyland.ch mortgage rate assistant can help you with this.

5. Consider refinancing your mortgage

Depending on the going market interest rates and your ongoing mortgage costs, it may be beneficial to terminate your existing mortgage before the term ends. While the penalty fees are often high, if you can get a new mortgage with a much lower interest rate, then refinancing your mortgage with a different one can make sense in some exceptional cases. The moneyland.ch early mortgage termination calculator lets you calculate whether or not it makes sense to refinance your mortgage.

6. Consider locking in a favorable interest rate

Depending on the situation, it can be beneficial to lock in the interest rate of your new mortgage some months before your existing mortgage ends. Many Swiss banks give you the option of using a mortgage rate lock that guarantees a specific interest rate up to two years before the mortgage begins.

The disadvantage of using a mortgage rate lock is that you pay additional fees for the assurance that your rate will not go up. Whether or not a mortgage rate lock pays off depends on both the fees charged, and how you expect interest rates to develop. If market interest rates go down in the meantime, then you will end up paying more than necessary. If interest rates go up, then you could end up saving money. There is always a risk that you will pay more, because there is no sure way to know how mortgage interest rates will develop in the future.

7. Choose the right model

The same principle that applies to getting your first mortgage also applies to getting a mortgage to replace your expiring mortgage: Choose the right mortgage model. Which model is the best match depends on your financial situation on the one hand, but more importantly, on how you expect interest rates to develop.

Using a mixed mortgage, which combines a series of fixed-rate mortgages and SARON mortgages, can make sense in very specific cases. But the downside of mixed mortgages is that they can make it more difficult to move to a different lender in the future, so using them is not recommended in most cases.

Interesting fact: In the past, SARON mortgages (and their predecessor LIBOR mortgages) have usually worked out cheaper than fixed-rate mortgages.

8. Borrow the right amount

Replacing a mortgage gives you an opportunity to review your existing mortgage, and your current needs. Depending on your financial situation, it could be beneficial to pay off part of your mortgage debt. On the other hand, repaying part of your mortgage may not make sense if you earn higher interest on your savings than what you pay for your mortgage.

9. Avoid expensive mortgage brokers

There are many Swiss mortgage brokers that act as intermediaries between lenders and homeowners. Unfortunately, there are some brokers that are more interested in their own profit than in the welfare of their customers. The sales commissions that brokers receive from lenders can potentially result in a conflict of interests.

On the other hand, using a reliable mortgage broker can benefit you because they may handle a large part of the work involved, offer helpful advice, and get favorable mortgage quotes. But when replacing a mortgage, using a mortgage broker does not always work out cheaper – mostly because most brokers only have a limited selection of mortgage offers in their portfolios. On the other hand, using a mortgage consulting service that charges a consultation fee but does not receive sales commissions can be advantageous. Ideally, you will receive unbiased advice that could help you save much more than the cost of the consultation fee.

10. Start early

For all of the tips above, it is important that you get started as early as possible. As a general rule, you should begin planning for the replacement or renewal of your existing mortgage at least one year before it expires. Look at the required notice period in your mortgage contract’s terms and conditions. Important: Fixed-rate mortgages can also have notice periods. If you only begin looking at other mortgage offers shortly before the deadline for giving notice, you may miss your opportunity to terminate your old mortgage agreement and get a cheaper mortgage instead. In some cases, that could mean getting stuck with an expensive adjustable-rate mortgage to bridge the gap until you are able to replace your mortgage.

More on this topic:
Mortgage rate assistant
Compare Swiss mortgage offers now
Early mortgage termination calculator