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!
