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Premature cancellation of the mortgage: This is how you can save

Personal loan and taxes: The most important things at a glance

Premature cancellation of the mortgage: This is how you can save

The most important thing is to keep an eye on the prepayment penalty when the mortgage is canceled or the planned cancellation. This is calculated from the interest that the bank has missed and the reinvestment interest. The greater the difference between the two, the more expensive it is to exit the current mortgage. Some banks even calculate risk margins, which probably offer the greatest savings potential. This is because they are completely unjustified because there is no longer any risk for the bank after the replacement.

Personal loan and taxes: The most important things at a glance

Save in various ways when repaying the mortgage

When concluding the mortgage contract, pay attention to how the costs for a prepayment penalty are calculated. This point is important when choosing the bank where the mortgage should be taken.

Negotiate well with the bank! If you have other products with the bank that runs your mortgage, they will be happy to accommodate you if you are planning to redeem them. Customers who have additional accounts or deposits with the bank are often offered lower exit rates.

Also good to know: Most cantons offer tax savings if you have to pay prepayment penalties. Include this in the tax return, it reduces the tax burden. Find out more from your canton or the canton administration.

The bank as a winner

Suppose you redeem your mortgage at the bank and the bank then deposits the money on the capital market. The market has since recovered and is now offering better interest rates. This means a profit for the bank because it now receives more interest than you would have received.

Wouldn't the bank have to pay you compensation because you quit? From a purely mathematical point of view, this may be true, but in reality no bank will do this. Nevertheless, you will at least benefit from a lower compensation payment. You cannot avoid it, because it is an important source of income for the bank.

But at least the payment is lower. It may therefore make sense for you to postpone the repayment of the mortgage at a time when interest rates are already rising. In any case, the bank will emerge from such a situation as a winner, but with a little skill you can at least make sure that the profit or loss is not quite as high.

The decision for a property is not always permanent. If you want to sell the mortgage-financed home again, you face an administrative problem. The easiest way for everyone involved is to transfer the mortgage to the new owner.

However, this requires the consent of the bank. It must agree to the transfer itself as well as to the creditworthiness of the new mortgagee.

Fixed mortgage vs. Libor mortgage

Taking out a fixed-rate mortgage protects you from rising interest rates and suddenly making your mortgage more expensive. But there is a catch, because you also do not benefit from falling interest rates.

If interest rates fall enormously on the money market, you pay a high price for the security of interest initially thought to be well-negotiated. If you want to get out of the mortgage contract, it will be expensive, as described above. It can therefore make sense not to rely on a fixed-rate mortgage at all, but rather? like so many other borrowers now too? to take the path with the Libor mortgage.

With this, the margin is fixed, the interest rate can adjust. Of course, it can also go up, this is the low risk that remains. You should consider a Libor mortgage at the latest when you are considering redeeming your existing mortgage.

You will then no longer save for the mortgage to be repaid, but at least for the future and the remaining amount to be financed. Of course, this also depends on how high the credit burden is and whether the slightly higher risk is worth it.

Taxes against interest

The prepayment penalty can reduce taxes, as we have already pointed out. So despite paying this penalty fee, it may still be worth paying off the mortgage early because the tax savings more than outweigh the additional costs.

The prepayment penalty is mentioned in the tax return where the normal debt interest is also to be listed. Important: The interest costs must not exceed CHF 50,000 a year.

Whether the early termination of the mortgage is worthwhile or not depends on the new conditions offered by the other bank. The tax aspect must also be taken into account. Contrast the cost of the replacement with the amount that you can save.

This gives you clarity and tells you exactly whether you can expect a positive result in the end or not. Make sure you use one to compare providers Mortgage comparison. Thus, within a few minutes you will find the cheapest provider with whom the replacement will probably be worthwhile.

Conclusion: worthwhile or not?

A mortgage can be redeemed, but it is not uncommon for a borrower to pay dearly. It is therefore advisable to get an idea of all costs involved in advance. Make a checklist of the costs and compare them with the savings.

These include the tax aspects as well as the expected interest. If there is a big difference and the costs outweigh, the replacement is not worth it. The individual measures are then insufficient to offset the fees.

To get around this, you should think about how long you want to stay with a provider before you sign the mortgage contract. Many banks offer lower interest rates on a ten-year fixed-rate mortgage than on a five-year mortgage.

This means that you run the risk of higher interest rates at the time the mortgage is updated, but at the same time the risk of a very high prepayment penalty is lower. Compare well and weigh what is important and right for you!

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What needs to be considered in the event of a replacement?

Take out accident insurance?

What needs to be considered in the event of a replacement?

There are several reasons why a mortgagee chooses to redeem the mortgage. It is usually the case that there is no longer any satisfaction with the current provider or that the interest rates offered by other providers are significantly lower than those that have to be paid for themselves. The thought is quickly there: why not continue to finance at another bank? However, it is not always possible to redeem the mortgage, especially since this procedure can be very expensive, especially for a fixed-rate mortgage.

Take out accident insurance?

Preliminary considerations for replacement

If a borrower brings up the question of repaying the mortgage, the bank advisor will quickly counter. He speaks of a high prepayment penalty, which is often more expensive than the possible savings from a lower interest rate at another bank. 

In addition, the collateral brought in can become a problem. Not all banks accept the same collateral and it may happen that the new bank does not accept it. It is therefore advisable to put the possibly new mortgage through its paces before the issue of early redemption is even raised. Therefore: Please inform first and then quit! Conversely, it is the wrong way.

The question also arises as to when it makes sense to repay a mortgage. Current interest rates play a key role in most cases. If they are significantly lower than with the current bank or with your own mortgage, the question of the replacement quickly arises. 

It is possible to benefit from high financial benefits if the mortgage is taken out with a cheaper bank. To make this possible, you should seek an offer from the bank at least three months before the expiry of your borrowing rate. This can be the current bank where the mortgage is taken anyway. 

But that can also be a completely different bank or an insurer. If you want to get an overview of the different providers and their conditions, use the comparison calculator on neotralo.ch. 

If the comparison banks offer better terms, early repayment of the mortgage can be worthwhile. But then calculate the prepayment penalty against it to find out what the actual savings will be.

When is the right time to redeem the mortgage?

Whether the mortgage repayment is the right way for you depends on the fixed interest rate on your previous loan. If the debit interest rate on your mortgage is still more than 24 months, repayment is usually not possible at all or only against payment of a high compensation payment to the bank. 

A fixed-rate mortgage that is 24 months before the end of the fixed rate period can, however, already be replaced at some banks. The mortgage with the new bank should then be taken out immediately to ensure that the loan is repaid. However, the transferring bank requires an interest surcharge. 

The reason: you secure the current interest rates, which theoretically can increase in the next 24 months. This would mean a loss for the releasing bank. To protect yourself from this, a forward loan is usually associated with an interest premium. The premium is higher the further in advance the loan is taken out. Some banks only offer this type of financing for a maximum of twelve months in advance.

Follow these steps for early replacement

First you should come across various offers a mortgage comparison for a mortgage get what's here about neotralo.chis very simple. Compare these offers and decide on four to five providers that are closer to the selection. Then submit a specific financing request to the bank of your choice. So the steps to the replacement must be: Compare, contact, conclude!

Note the prepayment penalty already mentioned. This is calculated as a percentage of the outstanding mortgage amount. This means that compensation payments can amount to many thousands of Swiss francs. 

Payments of CHF 40,000 or more are not uncommon. Therefore, calculate well whether the replacement is worthwhile, because you have to be able to save at least this sum, or even more, by switching. How high your savings will be depends on the outstanding amount of the loan, where the interest must be significantly lower than before due to a bank change. 

If the prepayment fee exceeds the possible interest savings, a redemption is not recommended, because the savings would practically be eaten up. Usual rates for early repayment penalties are, for example, 0.70 percent for fixed-rate mortgages with a term of 10 years, Libor mortgages are often still calculated at least 0.60 percent. 

So carefully consider whether the replacement is worthwhile for you. Even with a? Zero round? the switch is not worth it unless you benefit from further advantages and better conditions (e.g. a shorter notice period).

When is early redemption worthwhile?

Please note the aforementioned aspects and inform yourself about the possible prepayment penalty. How much this depends on the remaining term of your mortgage as well as on the interest that you are currently paying and that you would have to pay in a new loan. 

Experts believe that the redemption is only worthwhile if an interest rate differential of at least 1.5 percentage points is reached and if the remaining term of the mortgage is at least twelve months. But even then you should compare the providers well and not use the apparently cheapest offer. 

The associated conditions can be a disadvantage for you, so you should take a close look. Use our comparison calculator here on neotralo.ch to find the currently best provider for you and request a specific offer. Also consider a possible increase in the repayment amount in order to be able to repay the mortgage more quickly. 

In any case, however, the following applies: early redemption is never free and needs to be carefully considered. The offers in this regard often seem very lucrative, but on closer inspection they turn out to be significantly less good than expected. Therefore: Please do not change prematurely and take all possible costs into account!

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Amortize or redeem mortgage?

Dissolve or pay out life insurance

Amortize or redeem mortgage?

Amortization is a repayment of the mortgage. In most cases, the bank requires that part of the mortgage amount be amortized, which exceeds two thirds of the value of the property. Amortization beyond that is not mandatory. This means that the second mortgage must be amortized, for which a fixed period is agreed. Most banks require repayment by the start of the pension at the latest.

Dissolve or pay out life insurance

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!

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The most important thing about home finance

When do you need household insurance

The most important thing about home finance

Two key figures are important for financing a home: mortgage lending and portability. Banks loan up to a maximum of 80 percent of the property value or the purchase price. For you, this means that you have to bring at least 20 percent equity into the financing. In addition, housing costs (living expenses) may not exceed one third of gross income.

When do you need household insurance

The required debt

First, calculate how much debt you need. A list of the existing equity capital is important for this. Enter a list of how much savings you have, how much can come from an early inheritance or a gift, and whether you can withdraw money from the second or third pillar of social security (and if so, how much). 

The available equity results from the sum of these amounts. You start from this sum and multiply it by four. This in turn results in the debt capital that can be raised through a mortgage. An example: You have CHF 50,000 in equity at your disposal. 

Multiplied by four, this results in CHF 200,000. This means that you can count on a mortgage of CHF 200,000 if you bring in the aforementioned CHF 50,000 equity. Since the burden here is over 65 percent, the mortgage is divided into a first and a second mortgage. 

The latter must be amortized on a fixed date, i.e. paid back. As a rule, retirement is the latest point in time, and banks are reluctant to finance it.

The portability calculation

Anyone who has ever asked about a mortgage will also use the term? Portability calculation? have heard. It is used to calculate how much home You can afford at all. The first and second mortgages are subdivided based on the purchase price and the possible own and external funds. 

The interest is then calculated, the amortization deducted and the ancillary costs determined. The bank uses this to calculate the running costs that you will face each year. These, in turn, determine how high your annual income must be so that you can finance it as desired.

Financing partner wanted!

If you are looking for a partner, you usually do not commit yourself lightly. Someone you want to be with for many years just has to "fit". This also applies to the financing partner of your mortgage; after all, you are bound to it for ten or even twenty years. 

In the past it was common to simply go to the house bank and take out the mortgage there, but it is no longer recommended today. It makes a lot more sense to take a closer look at the competition from the house bank. Also note the cantonal banks, the insurance companies and above all the online banks. 

Judge with the neotralo.ch mortgage comparison and find the financing partner that suits you! Before making a decision, consider these points:

    • Be sure to get multiple offers (at least four to five)!
    • Compare the offers and choose who might want to renegotiate the conditions.
    • Try to acquire some expertise yourself so that you can negotiate on an equal footing.
    • Talk to the advisors of the selected providers.
    • Decide not only on the basis of low interest rates for a provider, but also compare the other conditions (e.g. termination options).

Submit the loan application: Please think of all documents

The loan application will only be processed if all documents are available. Therefore, it makes sense to inform yourself in advance about the necessary documents so that you can show a lot of them during a consultation. In any case you need at least these documents:

    • current tax return
    • Real estate documents
    • Extract from land register and draft sales contract
    • Building insurance estimate

Not all documents will be immediately available, which is especially true if you want to get a rough overview of the financing options. 

Above all, the land register extract, the draft of the purchase contract and the estimate of the building insurance are only available if you are actually considering the purchase of a property and are already in negotiations with the seller.

 After the comprehensive consultation, you know exactly whether lending and portability are possible as intended. You will then receive the final acceptance or rejection within a few days.

Choose the right mortgage

With most providers, customers have a choice of what type of mortgage they want to take out. There are fixed, variable and Libor mortgages. They all have different advantages and disadvantages, as we explained earlier. 

You just need to know which model suits you, and you should be able to assess yourself well. Are you more of a risk-taking type or do you need a high level of security? The following tips will help you choose the right mortgage and put home finance on a safe footing:

    • Fixed-rate mortgage: This is suitable for everyone who knows their budget exactly and who is afraid of risk. You play it safe and are protected against unpleasant surprises.
    • Fixed-rate mortgage or Libor mortgage: At times of low interest rates, choose a fixed-rate mortgage and let the interest rate be fixed for ten to twenty years. The Libor mortgage is suitable for anyone who is willing to take a little risk and who does not mind if interest rates can rise after a low phase.
    • Rising interest rates: If you can expect interest rates to rise as soon as you sign the mortgage contract, a fixed rate mortgage is the best choice. This will secure the current low interest rates.
    • High interest rates: If you are not waiting for interest rates to fall and now want to conclude your mortgage contract, a variable mortgage is the best choice. If interest rates fall, you will benefit directly from it.
    • Falling interest rates: If you expect falling interest rates, a Libor or variable mortgage is the best choice. This means that they adapt to the interest rate level and have the option of having the agreed high interest rates adjusted.

The decision as to which offer is best for you and which bank will be your future partner should be carefully considered. 

Use the opportunity to compare different providers here on neotralo.ch and follow the old motto:? Therefore, check who binds forever !? Even if you don't commit yourself forever, with the wrong financing partner, ten years can be an eternity.

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What needs to be considered when taking out a mortgage?

What can you insure, what can't

What needs to be considered when taking out a mortgage?

Financing experts are always surprised at how blue-eyed some people take out a mortgage, even though it is one of the most important steps in their lives. A mortgage usually runs for many thousands of Swiss francs and is usually in the five- to six-digit range. Losses are dear to the mortgagee. And yet it is the house bank with which the financing is tackled?

What can you insure, what can't

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!

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