How willing are you to take risks?
Find out what risk you are willing to take. The cheapest financing is not always the best idea, because it can also result in a financial fiasco due to further conditions. Determine what your maximum risk should be and define for yourself what constitutes a good mortgage.
No general statements can be made about this, because everyone sees in the? Good mortgage? something else. For some, it is very cheap, for others, interest rate negotiations can also be carried out over the entire term. Others see an advantage in the long fixed interest rate and like to commit themselves to up to 20 years. Ask yourself the following questions:
- What is my willingness to take risks?
- What risk can I take?
- Do I have enough liquid funds in an emergency to finance unforeseen things?
- How flexible do I have to stay?
- Do I want to keep my home forever or do I want to secure myself for a possible sale?
- Do both spouses share the risk or will only one partner be the mortgagee?
Other things can be derived from answering these questions. The question of the partner looks at a possible separation, because then the ownership of the property must be regulated. This goes hand in hand with the question of who then pays for the mortgage or whether both partners have equal rights here and can therefore be used by the bank for payment.
Last but not least, it is all about security and flexibility. If you now want to find the best mortgage for your home financing, first classify yourself in one of the following risk types:
- Mindful of security
Those belonging to this group are characterized by their risk aversion. They want to commit themselves in the long term and prefer to secure the current interest rates rather than being confronted with higher interest rates later and unable to negotiate them. True to the motto: Better the sparrow in your hand than the pigeon on the roof! - Risk is possible
Risk takers follow the mortgage market and also like to run the risk that interest rates may change negatively for them. After all, the opposite is also possible and, due to a lack of fixed interest rates, the interest rates become lower. - Sufficiently secured
The liquid funds are sufficient to absorb a suddenly higher interest rate. These people are considered "risky" designated. - Not enough money
Those who are not at risk may face the question of whether they want to sell their property when interest rates rise. The reason is the lack of liquid funds for hedging. - Sales possible at any time
Mortgage borrowers who want to remain particularly flexible belong to this group. You may also want to be able to sell your home again and then need a mortgage to get out of. - Home is inhabited in the long term
These people do not need a lot of flexibility because they will live in their own home for as long as possible. A sale is not planned.
Different type combinations possible
You can choose between different types of mortgage. You can rely on a Libor mortgage and enjoy a certain flexibility and freedom, but at the same time the risk is greater. Financing through the fixed-rate mortgage is particularly secure, but then you are bound and no longer flexible for the duration of the term.
The fixed-rate mortgage can have an exit option, which many borrowers don't even know. If you need to sell your property, this product provides an opportunity to get out of the mortgage. You retain the necessary flexibility, but on the other hand you are on the safe side.
The otherwise threatening prepayment interest, which can cost many thousands of Swiss francs, is significantly lower here. Before concluding the mortgage contract, ask your bank whether such an exit option is provided.
The Libor mortgage offers more flexibility, but at the same time involves certain risks. However, you can conclude a short-term framework contract here, which can reduce the risk of rising interest rates.
You then have the option of expiring the mortgage contract and selling your property. On the other hand, an extension of the mortgage is of course also possible, or it can be converted into a variable mortgage or a fixed-rate mortgage.
Fixed-rate mortgages with a short term are also possible. They are fixed for one or three years so that you can remain flexible and react to a reduction in interest rates. If you do not want to secure the currently low interest rates for too long, but rather react to the interest rate market, this variant is better than the fixed-rate mortgage with a fixed ten or even twenty years.
As always: evaluate yourself correctly and determine whether you prefer security or flexibility. The mix between the two is guaranteed by the Libor mortgage.
Use interest rate forecasts?
Interest rate forecasts are popular and often made, but they are rarely true. Even the biggest experts cannot estimate the market for the coming years and it is therefore clear that things always turn out differently than you think! Nevertheless, interest rate expectations are not unimportant and should be taken into account when choosing a mortgage strategy.
If interest rates are already expected to rise, the fixed-rate mortgage is the better choice. It does not have to be set at ten years, five years is often enough. Of course, this again depends on your risk awareness and the desire for security as well as on the financial reserves.
Take note of the interest rate developments in recent years before you make a decision, but do not make your decision alone. In order to find the best mortgage for home financing, you need significantly more information and key points to make a decision. Therefore, take into account all the conditions offered for the mortgage contract.
Allocation to tranches?
Many banks recommend dividing the mortgage into tranches, whereby two tranches are sufficient for a value between CHF 250,000 and 600,000. The advantage: the entire mortgage is not due for renewal at once, so the disadvantages for you are lower in terms of interest. You can stay more flexible and react more easily to new interest rates.
But what many banks like to keep silent: If a tranche expires, you cannot simply switch to another bank, even if it is significantly cheaper than the previous one. The new bank rarely ranks second and lags behind other creditors. Banks also want to protect themselves and do not take this risk of default.
The financing can only be redeemed if all tranches are transferred to another bank within 24 months. The division into tranches can therefore mean that you literally surrender to your bank and cannot part with it again.
This procedure is understandable on the part of the bank, because you have to extend the contract even if the conditions deteriorate. However, this can become a trap for you.
