Expert Tips for Saving Money on Your Mortgage: How to Save 25,000 Francs over 10 Years

For many people, taking out a mortgage is one of the biggest financial decisions in their lives. Consequently, one should not act naively here.

There is strong competition in the mortgage market between banks, insurance companies, pension funds and investment foundations. These offer different conditions – and the offer that is on the table in the first non-binding conversation with the house bank is rarely the best. “If you take out a ten-year fixed-rate mortgage, you can quickly save 25,000 francs, which you can save over ten years with the best offer,” says Florian Schubiger, co-founder of the comparison platform Kredite.ch.

How property buyers should proceed when taking out a mortgage and what needs to be taken into account: The following are instructions in several steps.

1. Be clear about what you want with the property

Buying a property requires a financing strategy – it is important to choose the right type of mortgage and the right term. But before that, you first have to find the right property. And here, too, you need some preliminary work before you start looking. “First of all, you should be clear about what you actually expect from a property,” says Lukas Vogt, member of the management board and designated boss of the mortgage broker Moneypark. The question of how long you want to keep the object plays an important role.

It is not uncommon for a young couple to buy an apartment together, and a few years later it is too small because there has been a new addition to the family, says Vogt. In addition, couples should – even if it is not very romantic – consider what will happen to the property in the event of a separation or divorce and whether a single party can still afford it. A change of job or the risk of disability or death should also be taken into account.

Otherwise there is a risk that you will have to withdraw from the mortgage agreement prematurely. This causes high costs for mortgage borrowers.

2. Clarify the amount of the mortgage

Even before you start looking for a property, it makes sense to clarify with a potential mortgage lender – for example your house bank – how high a mortgage can be given your existing financial options.

It is important to be clear about this, because as a buyer you usually have to make a quick decision when it comes to sought-after properties. For some mortgage holders, it is not easy to increase the mortgage later, says Schubiger. That’s why you should think about these things right from the start.

Planning is also important for people who already own property. Often a large part of the private assets is already tied up in the property. “A mortgage can also be an interesting means of making these assets liquid,” says Vogt. For example, employees approaching retirement have the opportunity to make pension fund purchases with the capital released by increasing a mortgage. Since these are tax-privileged, it is possible to achieve a higher return than if the capital remained tied up in the property.

Vogt also points out that as a mortgage borrower you may even have advantages if the mortgage is higher. Some financial institutions offer discounts from a certain mortgage amount, for example from 1 million francs. However, he assumes that as a mortgage borrower you are attractive to a provider with a mortgage amount of 200,000 to 300,000 francs, including those below.

Many older people have paid off their mortgage heavily so that they have little debt when they get older. However, a mortgage amount of 100,000 francs is unattractive for a bank because the work required for such an amount is not really worth it, says Vogt. However, goodwill solutions are often found.

3. Fixed or Saron mortgage?

Whether a fixed-rate mortgage or a Saron mortgage is more suitable depends on the individual customer. Saron mortgages are money market mortgages whose interest rates fluctuate and adjust to the interest rate level. If interest rates fall, mortgage borrowers pay less. On the other hand, if they go up, they have to pay more. With fixed-rate mortgages, however, when you take out the interest rate you set the interest rate that you will pay until the end of the respective term. This way you can avoid surprises.

“For most mortgage borrowers, planning security is very important,” says Vogt. It was only recently that we saw how much interest rates could rise within a short period of time. If you want to plan your expenses well, you should opt for a fixed-rate mortgage.

With 40 percent of the contracts concluded, ten-year fixed-rate mortgages continued to be the most popular type of mortgage at Moneypark in the third quarter of 2023. But there have been times in the past when two out of three deals were for ten-year fixed-rate mortgages, says Vogt.

Anyone considering a Saron mortgage should ask themselves whether, in case of doubt, they can pay twice as much for the mortgage, says Vogt. Schubiger also believes that anyone who can easily finance their property can opt for a Saron mortgage. If you are rather tight on cash, you would probably be better off with a fixed-rate mortgage.

4. When is a good time to take out a mortgage?

Of course, no one knows exactly how mortgage interest rates will develop. If you want to bet that interest rates will fall and can afford it, you can do so with Saron mortgages. If you believe in rising interest rates, a fixed-rate mortgage is the right product for you.

After rising sharply as a result of the key interest rate increases by the Swiss National Bank (SNB), mortgage interest rates have come back somewhat since the summer of this year. Top conditions for a ten-year fixed-rate mortgage are currently around 2.2 percent, says Schubiger. “It’s not that bad.”

5. Compare mortgage conditions

Many property buyers don’t compare mortgage offers enough. It can be assumed that the first offer from the house bank is usually not the best. Like everywhere else in life, it is important to compare offers in the mortgage market, especially since there is fierce competition for customers.

Insurance companies, pension funds and investment foundations are primarily interested in low-risk, solvent customers when it comes to their mortgage offers, says Vogt. But even mortgage borrowers who don’t have a thick financial cushion shouldn’t be deterred by this. Schubiger advises using online comparisons of mortgage interest rates. Even if you use mortgage brokers, you have the chance to get more favorable conditions.

6. Negotiate with the mortgage lender

Many property buyers also do not know that they can negotiate the terms of the mortgage with the providers. You have particularly good chances if you are not “fully at the limit” when it comes to financing, says Schubiger. If you have a larger equity cushion, the choice of providers is generally larger.

“The mortgage interest rates at banks are not set in stone,” says the financial expert. “They don’t give the best interest rate right from the start, so you should definitely negotiate.”

7. Don’t take out multiple tranches

Vogt recommends not taking out multiple mortgage tranches with different terms. With such a split you are strongly tied to the mortgage lender. “You may never get out of there again,” he says. The close relationship with the mortgage lender then prevents you from being able to negotiate well when extending the mortgage.

Many mortgage providers take advantage of this and offer less attractive interest rates when renewing. “You should make sure that you can talk to all providers again when it comes to follow-up financing,” says Vogt.

Schubiger also generally doesn’t think it’s a good idea to stagger mortgages with different terms. But he can also understand people who are afraid of higher interest rates and want to counteract this with this strategy. Staggering can sometimes make sense when it comes to amortization. If this is desired, he recommends making the smaller tranche at short notice and paying it back if necessary.

8. Many mortgage contracts contain clauses that are not in the interest of the mortgagee

Mortgage borrowers should be aware that many mortgage contracts contain passages that are not in their interest. According to Schubiger, this includes, for example, a clause according to which providers can securitize a mortgage. The claim can then be transferred to a third party. For the mortgage holder, this can mean that this party will then take stricter action in the event of a crisis.

The so-called offsetting waiver also falls into this category. This means that if the mortgage lender becomes insolvent, the customer cannot offset or repay his mortgage debts against account balances. This is also where the deposit insurance limit of 100,000 francs comes into play. Balances above this limit in an account would therefore fall into the bankruptcy estate and would be lost.

Schubiger advises reading the mortgage agreement carefully and requesting that such clauses be deleted. Some providers are willing to do this. Vogt, on the other hand, believes it is unlikely that mortgage lenders will allow themselves to be discussed about the deletion of such clauses.

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