Exploring Cost-Effective Fixed Mortgages: Key Factors to Consider
In the current Swiss mortgage market, homeowners and potential buyers are met with a range of options for fixed-rate mortgages. Here's a breakdown of some key points to consider when navigating this landscape.
Firstly, it's essential to remember that discounts of up to 0.30 percent can be negotiated, but it's crucial to avoid accepting a discount too early. Fixed-rate mortgage interest rates change only within a limited range from day to day.
Regular review of relevant parameters such as income, renovation needs, provisions for the unexpected, and current amortization rate is advised to ensure they are reasonable.
The benchmark rate for a 10-year fixed-rate mortgage varies among banks. For instance, Zuercher Kantonalbank offers a rate of 1.82 percent, while Luzerner Kantonalbank and Raiffeisen Schweiz are slightly higher at 1.83 percent and 1.88 percent, respectively. Valiant and Graubuenden Kantonalbank have the highest rates at 1.90 percent and 1.93 percent, respectively.
Borrowers who exceed the 66 percent limit must continue to make amortization payments.
The low volatility of fixed-rate mortgage prices is expected to continue, limiting any potential price increase due to the fall in yields on 10-year Swiss government bonds from 0.32 to 0.18 percent within a month.
The interest rate differential can widen further depending on market conditions. Last month, it was 0.70 percent, and the highest this year was 0.79 percent in late July.
The Basel III regulations, FINMA's stricter calculations of affordability, and the SNB's zero-interest-rate policy are impacting 10-year fixed-rate mortgages among various providers.
Customers who have their calculated affordability and loan-to-value ratio under control can expect some leeway from the bank in terms of pricing.
Early planning is essential when renewing a fixed-rate mortgage, as many financial institutions have a cancellation period of up to six months before expiration.
The most favorable offers, according to data from hypotheke.ch, are currently at 1.39 percent with a Swiss pension fund, followed by Hypomat - the online service of Glarner Kantonalbank - at 1.44 percent, or Vaudoise at 1.51 percent.
Banks demand more margin to compensate for zero interest rates, and this is unlikely to change in the near future. The calculated interest rate for borrowers is currently 5 percent, with borrowers needing to cover 30 percent of this rate to obtain financing.
Negotiation is key when refinancing a mortgage, even at a high benchmark rate with the main bank. The difference between the most favorable and the most expensive offer is 0.54 percent, which equates to an additional cost of 54,000 Swiss francs for a 10-year fixed-rate mortgage of one million, or 5,400 Swiss francs per year, with the most expensive offer.
The stabilization of interest rates means that the prices for fixed-rate mortgages are no longer running away from customers as they have in the recent past. However, attractive offers on mortgage financing platforms like hypotheke.ch or moneyland.ch have decreased to a few financial institutions.
A 55-year-old borrower may find that the renewal date of a 10-year fixed-rate mortgage falls on their retirement date at 65 years old, which could potentially make the calculated interest rate too high, potentially requiring the property to be sold.
Those who want to switch providers must start thinking about a new fixed-rate mortgage eight to nine months in advance. All Swiss banks remain strongly involved in mortgage business, despite some having less room for new business due to rising property prices.
Lastly, the loan-to-value ratio is the second most important factor, with a limit of 66 percent. Borrowers who refinance less than 66 percent of their property's value will not be pressured to make further amortization payments.
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