Verbal contract is valid
Many a borrower believes that what has been said orally is not legally binding. But that is wrong, even an oral contract can be binding.
A reputable bank will always record the things discussed in a written contract, because this is both a security for the bank itself and for the borrower. So if both sides have agreed on the mortgage, the data will have to be written down.
Mortgage contracts are not tied to a formal requirement, because every bank naturally has a corresponding form that contains the most important points about the mortgage:
- Type and amount of mortgage loan
- Borrower's name
- agreed interest rates
- Start of the mortgage and term
- agreed payment dates
- possibly fees and discounts
- Conditions for early redemption and termination
- Terms of Service
- Registration of the mortgage
- Address of the property to be financed
Most of the time, the mortgage contract will contain additional data that elaborate on the details. How extensive the contract is is entirely up to the bank. If you would like more information to be included, please ask your bank advisor. If this is not disadvantageous for the bank, this should not be a problem.
Very important: Before you sign the contract and thereby seal the conclusion of the mortgage, you should definitely read the fine print. This primarily concerns the specified notice periods and the general terms and conditions. Above all, the point of early termination of the contract is important, because if you want to get out of the contract, this should be possible at any time.
Especially if you are entering into a long-term mortgage contract because interest rates are currently very low, you should consider how you can get out of this contract. Find out more about these points:
- What happens if you change jobs?
- What happens if you die or your partner dies?
- What about divorce?
- What is the procedure for losing a job? How about insolvency?
- Can you still sell the property at all?
All of these questions should be regulated in the mortgage contract, so that you have a certain legal and planning certainty. In this regard, be sure to read the small print in the contract, because there are often traps lurking here, which can become noticeable later on.
Check prepayment penalty before graduation
The bank from which you borrow the money with which you buy the desired property invests your money in the capital market. The margins on mortgages are higher there, which gives the bank a lower interest rate than what it gets from you. In most cases, compensation is therefore required if you decide to want to do so before the official contract ends.
This is also called prepayment penalty or exit compensation. It can be really expensive! Therefore, be sure to consider this point before you conclude the mortgage contract. In the case of a fixed-rate mortgage, you may be asked to pay back the remaining amount that the bank would have earned for the duration of the term through your interest payments.
Assume that your mortgage was CHF 600,000 and you cancel it four years after the start of the term. The fixed interest rate was 2.25 percent. The bank would only receive one percent interest on the capital market for the remaining six years. It will now claim a kind of default compensation from you and bill you for the interest rate differential of 1.25 percent.
You will now come out of your contract, but you will have to pay a fine of CHF 45,000. A nice sum that could have been avoided if you had thought about this eventuality beforehand.
If in doubt, do not commit yourself to such a long time and take advantage of the offers of some banks that offer a cheaper five-year interest rate on a fixed-rate mortgage. Some providers even set the interest rate a little higher for the ten-year term.
Negotiate before closing
Most banks require the compensation just described if you want to terminate your mortgage contract early. The only question is how high the compensation payments will be. You should definitely clarify this question beforehand, because it is decisive for the choice of the provider.
The statutory provisions are mandatory and you must abide by them. All other contract terms, on the other hand, are rather voluntary and only a matter of negotiation. Many banks officially announce that they will only adhere to the general terms and conditions that are visible to everyone.
Unofficially, however, individual regulations are possible in most cases. Do not sign prematurely, but first use the comparison option on neotralo.ch and secondly the opportunity to renegotiate the conditions shown.
Don't let your advisor push you to graduate. This also applies if the latter suggests the largest possible carving. The consultant's argument is understandable, because it relates to the fact that you enjoy the greatest possible security. If interest rates fall in some time, you can already replace the shorter tranche and renegotiate.
If interest rates don't fall, you still have the longer tranche as collateral. This is understandable, but the interest can also go up and you are then forced to accept the adviser's offer. Even if this is clearly worse than the previous level. Make sure that you can amortize the expiring tranche by then.
Threaten them to pay for themselves or instead ask for a very cheap alternative. The consultant will already rethink the desired degree and drop it in your favor.
Another tip at the end: measure your mortgage rather generously. Many borrowers plan too little and underestimate the costs that come with buying or building a house.
Then the equity becomes scarce, the sustainability is no longer given. You'd better take your time as a mortgagee and pay back a little more money. This makes you live more calmly and offers you the necessary financial freedom.
To find the best offer for the mortgage, use our Mortgage comparison!
