The mortgage with a variable interest rate
The interest rates shown were determined by key4 on the basis of the following financing parameters: canton: Zurich, loan amount: CHF 500,000, affordability: 24%, loan-to-value ratio: 50%, mortgage payout date: 19.11.2020.
What is a Libor mortgage?
The Libor mortgage has a variable interest rate.
This means that the interest rate is based on the Libor (London Interbank Offered Rate), the official benchmark rate which is reported daily by major commercial banks and published in London. The Libor interest rate is usually adjusted every three months.
How does a Libor mortgage work?
When you take out a Libor mortgage, you choose a specific fixed-rate period (usually three months) as well as deciding on the term. After this period, the interest rate is adjusted to the current Libor interest rate – plus a fixed margin charged by the provider.
A Libor mortgage therefore makes sense if you expect interest rates to fall or remain constant and if you have certain financial leeway.
How do I protect myself against rising interest rates?
You can protect yourself against rising interest rates by converting your Libor mortgage into a fixed-rate mortgage at the end of the fixed-rate period. This means that the interest rate remains the same over the entire term and you can plan the costs in advance with certainty.
It may also be advisable to split the overall financing amount into several tranches – each with different products (Libor or fixed-rate mortgage) and terms. This reduces the risk of having to renew the entire mortgage in a high interest rate environment.
What are my advantages and disadvantages?
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