The bank takes the first step
It is usually the bank that approaches the customer and asks for a decision on how to proceed. This means that the bank would like to have a refinancing decision shortly before the mortgage in question expires.
However, it is better for the mortgagee to take action before the end of the term, because this gives him enough time to find the right strategy for himself. This procedure also has the advantage that you do not miss the notice period.
Incidentally, it is not always worthwhile to stay with the previous bank; the mortgage can also be renewed via another provider.
As before the initial mortgage was taken out, it is better to compare different providers. Neotralo.ch will be happy to help you make this comparison and will find the best offer for you!
Is it worth the payback?
While there is still a choice with the first mortgage, this is not the case with the second mortgage: amortization is mandatory when the specified period has been reached. However, you should ask yourself two questions:
What are the tax benefits of amortization?
What will happen to the money if it is not amortized?
If you use the existing money for amortization, it will not be available for other expenses. Those who do not pay off can invest the capital and thus achieve a higher return in the long term, but this is usually only possible with risky forms of investment. Those who cannot or do not want to accept losses should therefore rather put their money into the amortization.
A distinction is made between direct and indirect amortization. In the direct variant, the mortgage loan is repaid in regular tranches. If you opt for indirect amortization, you invest your money and can later pay for it in one go. For explanation:
Direct payback
You regularly repay part of the mortgage to the bank, which reduces the mortgage amount as well as the interest. In addition, the tax burden increases due to the falling mortgage debt. The advantage of this variant is that the amount of debt decreases, which has a positive effect on the psyche for many mortgage holders. Many people feel badly burdened by debt and want to continuously reduce their debt burden. With this variant, the taxes are to be seen disadvantageously, moreover, the capital may be missing for private retirement provision.
Indirect payback
The mortgage debt remains the same over the entire period of the mortgage, the tranches are deposited in pillar 3a of the private pension scheme. The cost of the mortgage remains at a constant level, but the tax burden is reduced. The reason: The payments into pillar 3a and the interest for a mortgage can be claimed for tax purposes. At a later date, the capital saved in pillar 3a can be withdrawn and used to repay the mortgage. As always, the second mortgage must always be repaid at the agreed time.
Where does the money come from?
If you have decided to pay off the mortgage, you will need to provide the necessary money. But where do you get it from and not steal it? There are a few ways that can help you do this and that still give you the liquidity you need to cover the usual cost of living.
Important for early retirees: the second mortgage must be repaid in any case before retirement age. Anyone who decides on amortization beforehand can no longer use their invested money to fulfill other wishes.
As a pensioner, however, it is much more difficult to get a mortgage again because the banks do not include a pension in the portability calculation. This in turn means that the new car or the desired addition to the house must be financed differently. In this case, it may be cheaper to forego the early amortization. The amortization should never destroy liquidity!
If sufficient liquid funds are available, the money for the amortization can be paid into the pension fund, for example. This improves the debtor's credit rating rapidly, and better terms are possible when taking out a new mortgage. It can also save taxes.
If you have your risk in focus, you should carefully consider whether it makes sense to bundle all of your assets in one property. Experts speak here of cluster risk, which means nothing other than that all capital is tied up in one place. If problems arise, there is a risk of high losses in value. It makes more sense to spread the money across different asset classes and thus achieve diversification.
Good advice is important
You should not only get comprehensive advice from an expert when taking out a mortgage. Expert opinion is also important with regard to the question of amortization or repayment of the mortgage. To do this, make comparisons between different providers and use ours Mortgage comparisonto get an exact picture of the numbers and costs!
