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A wide range on offer No two mortgages are necessarily the same. There are a variety of models to choose from. |
Fixed-rate mortgage
It is a mortgage whose interest rate does not change and is set to run for a contractually fixed term. This is a good option for people who like to know what expenses they are facing and who like to plan on a long-term basis.
Advantages
- The stability of the interest rate or of the monthly payments allows you to budget with precision.
- The fixed-rate mortgage safeguards you from the risk of sudden rises in interest rates throughout the term of the mortgage. Hence, this is a very safe option.
Disadvantages
- You would not benefit from any general cuts in mortgage interest rates.
- There is normally an early redemption penalty on the mortgage.
Variable-rate mortgage
The mortgage attracts a variable rate of interest and is not set for a fixed term either. If you anticipate a cut in mortgage interest rates and are not opposed to short-term budget planning, this is a suitable model for you.
Advantages
- If Swiss market interest rates come down, this development will be reflected in your mortgage.
- With flexible budget planning, the monthly burden can come down, and you can repay the mortgage as soon as you can afford to do so.
Disadvantages
- It is uncertain how mortgage interest rates will develop. If they go up, your mortgage will also become more expensive.
- This model makes it difficult to budget with any degree of precision.
Money market-based LIBOR mortgage
If the interest rate on your mortgage is based on the LIBOR money market rate (London Interbank Offered Rate), it is generally lower compared to other mortgages and is also very volatile. In other words, it varies at short notice and changes on a quarterly or half-yearly basis.
Advantages
- If the international market offers lower rates of interest than the Swiss average, you stand to benefit because the rate of interest which you are paying on your mortgage will also come down.
- The LIBOR rate is unstable – it is hard to predict how it is going to develop. If it rises, your mortgage will also become more expensive.
- This model makes it difficult to budget with any degree of precision.
Hybrid model
There are also hybrid mortgages which combine the features of fixed-rate and variable-rate mortgages, such as a LIBOR mortgage, in which limits can be defined for the maximum and minimum rates of interest.
Direct repayment mortgage
The monthly payments on this mortgage comprise an interest payment and a capital repayment.
Advantages
- The outstanding balance comes down with every monthly payment.
- The tax benefits on this type are different when compared to those on a mortgage with indirect repayment.
Indirect repayment mortgage
In this model, the monthly payment is an interest-only payment. This means the size of the mortgage debt remains unchanged. You also pay into an endowment policy that is pledged to the bank. The mortgage debt is then repaid from your endowment policy (third pillar) within a contractually agreed period of time.
Advantages
- This allows you to save indirectly towards the repayment of your mortgage with money that is "working" for your endowment policy and growing.
- There are often tax benefits at the same time because contributions towards the endowment policy and mortgage interest payments can be offset against your income tax liability.
- This type of mortgage attracts a higher rate of interest than other models.
First mortgage
The first mortgage covers up to 65% of the value of the property and is generally not paid back directly.
Second mortgage
The second mortgage covers between 15% to 35% of the value of the property. Unlike the first mortgage, you normally make regular interest payments and capital repayments on the second mortgage because it must be paid off within a certain period of time, within a maximum of 15 years or by the time you retire at the latest.
