"You cannot terminate a fixed-rate mortgage early free of charge." Dissolve the mortgage

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There are many preconceived notions when it comes to real estate finance. We are confronted with this every day. But what is it really? Today we ask Adrian Wäfler, Branch Manager at MoneyPark in Bern: Do I really have to pay a fine if I cancel my mortgage before it expires?

Future owners can take out a mortgage to buy a property. You commit yourself to the financial institution you have chosen to pay interest and to contractually amortize the mortgage.

What happens if you have to sell your home during the term of the mortgage and end the contract before the original due date? Most financial institutions charge what is known as an early repayment premium when a fixed-rate mortgage is terminated early. The amount of this penalty basically depends on four factors: the refinancing rate, the margin charged for the customer, the financial institution’s return on investment and the administrative costs. However, the relevant calculation clause in the mortgage contract is relevant.

There are a few ways to prevent such a payment, or at least to cushion it financially:

Transfer your current mortgage to a new property, provided all financing criteria are met. This means that you do not have to pay any prepayment penalties, as the mortgage continues to run in accordance with the contract.
The buyer of your property can take over your existing mortgage, provided their financial situation permits and the financial institution agrees to provide them with this financing.
There are now providers who allow a free exit from a fixed-rate mortgage when the property is sold (especially pension funds). It is therefore worthwhile to compare not only the interest rate but also the contract details when taking out the mortgage.
In most cantons, the early repayment penalty is deductible from the tax on capital gains. So in some cases it is possible to terminate the contract before the due date and thus deduct the penalty from taxable income rather than from the gain on capital growth. That way, the tax savings would be greater.

In short, early termination of a fixed rate mortgage can result in significant costs. MoneyPark’s advisors will be happy to analyze your individual situation and inform you about the various options for such a transaction.

Adrian Wäfler
Branch manager Bern
[email protected]