Mortgage: extend or switch? | key4.ch

Mortgage: extend or switch?

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14.01.2022 | 2 minutes

Are you planning to wait and see what your current bank might offer you? This is unwise when it comes to follow-up mortgage financing. On the contrary, now is the time to act. Many loan agreements have three- or six-month notice periods, meaning that time is not on your side. If you miss a deadline, it could cost you dearly and it’s also difficult to negotiate under time pressure. This article explains how best to proceed.

Two options

You have two options when your mortgage is about to expire:

  • Extend: Your first option is to extend your existing mortgage with your current bank. This will mean renegotiating the interest rate and conditions.
  • Switch provider: Alternatively, you could terminate your existing loan and take out a mortgage with another bank, in other words, switch providers.

Ideally, you’ll need to start thinking about this 12 to 18 months in advance. Are there attractive offers on the market? Would another provider be willing to give you a mortgage?

Some mortgage providers – including key4.ch – allow you to secure an attractive offer by extending your existing mortgage up to 18 months before it expires.

Arguments in favor of extending your existing mortgage

It’s less effort: Extending with your existing provider is the easiest option, as they already have most of the relevant documents about the property. Extending a loan is less complicated if you only need to update specific documents like salary statements or tax returns.

Fewer expenses and penalty charges are incurred: Extending a mortgage is standard business for any bank so expenses or processing fees should be minimal. However, taking out a mortgage with another institution and perhaps not complying with notice periods for terminating your existing mortgage could end up being very expensive.

Arguments in favor of switching providers

Competition ensures better interest rate conditions: The initial guideline offer for an extension is often not a good deal. Much better offers are often possible if you are willing to go to competitors and play the market. At key4 you can obtain multiple offers at attractive conditions and with just a few clicks.

By obtaining and comparing multiple offers you will often find interest rate differences: non-negotiated guide offers are often 0.4 or 0.5 percent more expensive than the best offers on the market.

Taking a 10-year, fixed-interest mortgage for CHF 600,000 as an example, across the full term of the mortgage, you would save up to CHF 30,000 in interest payments.

Even if your mortgage only runs for a specific period, you’ll need to be proactive and cancel the agreement. If you don’t, the terms of contract will make it difficult or perhaps impossible to switch providers. You are therefore strongly advised to enter the end dates and notice periods in your diary well ahead of time.

Switching mortgage providers early

Mortgage tranches as a stumbling block

In practice, a lot of clients are told that they cannot switch their mortgage because they still have other mortgage tranches with the same provider that do not expire until much later. They would need to redeem the outstanding tranches early, which would give rise to early redemption penalties because the loan was redeemed outside the normal deadlines.

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A practical approach

It can be a problem if, for example, one tranche expires this year and another not for another two or three years. However, it has become standard industry practice to allow a change anyway, especially if the full loan will be transferred to another bank within one to two years. The mortgage is, so to speak, “split” until it is finally paid off.

Summary

Now is a good time to refinance your mortgage because mortgage interest rates are at a historic low. Ensure you make sufficient time to thoroughly consider the two options of extending or switching your mortgage. This is also the ideal time to review your mortgage strategy and to adjust it to your current circumstances.


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