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You shouldn’t put all your eggs in the same basket. Hardly any other metaphor is used more often when it comes to questions of money. It can be paraphrased in one word: risk diversification. A classic example are investment funds: Instead of individual shares, you buy shares in an equity fund. You are invested in tens of stocks and have spread the risk elegantly.
Risks can also be spread with mortgages by concluding several mortgage types with different terms. This reduces the risk of having to finance the entire debt with massively higher interest rates when a single fixed-rate mortgage expires.
It has now been read on various occasions that this splitting of fixed-rate mortgages is out. The main reason cited is that it binds you to the bank and is less flexible. If the short-term mortgage expires, you cannot change banks, which is why you are in a bad negotiating position – to a certain extent, you are at the mercy of the bank. Above all, it is the mortgage brokers who shoot into the herb who take this position.
You can see it that way. And yet it is common practice to split the fixed-rate mortgage. It is not entirely true that there is no way to finance an expired mortgage with bank B, even though a fixed-rate mortgage is still open with bank A.
Of course, this can be quite time-consuming because of the mortgage notes. The following example explains: The mortgage debt of 500,000 francs is financed for 300,000 with an eight-year mortgage and for 200,000 francs with a five-year fixed-rate mortgage. The five-year-old is running out and you want to switch to bank B. If you have deposited two mortgage notes with bank A that exactly cover the amount of the mortgage in question, the problem is solved. The mortgage note for CHF 200,000 is deposited with bank B.
Often, however, only a single mortgage note is issued for the entire mortgage debt. In this case, a new mortgage certificate would have to be drawn up for the 200,000 francs. Because in addition to the costs of setting up a new mortgage note, the following should also be noted: The mortgage at Bank B is subordinate. This means that in its assessment, Bank B calculates the mortgage note in first place at CHF 500,000, although only CHF 300,000 are still debited. Depending on the lending principles, bank B may charge higher amortization costs because it cannot rule out an increase in the mortgage with bank A.
Despite such hurdles, banks repeatedly take out subordinated mortgages if they can use them to attract a good customer. But to avoid the problem with mortgage notes in the first place, I have a tip from a former bank director: Have several mortgage notes each worth CHF 100,000. He did it that way too.
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