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Real estate: five tips on mortgage loans
Most of our clients living in Switzerland are, or would like to become, homeowners and we help them achieve their real estate goals. In the current context of inflation and rising interest rates, we believe it is essential to carefully evaluate mortgage financing or loan renewal options and to follow the best practice tips below.
1. Choose the right type of loan to finance a property
For construction projects, banks often offer building loans. Their advantage is that the debt only accrues as and when invoices for the building work are received. Beware, however – the interest rates are often high. A Lombard loan (a line on your portfolio) can be an attractive alternative for such projects. If you opt for a building loan, carefully check the terms and conditions and the interest rates that will apply when it is consolidated (converted into a mortgage loan) before you sign on the dotted line.
2. Maintain your bargaining power
Financial institutions regularly offer mortgage loans divided into a number of slices or tranches. These slices have different terms, some of which are automatically renewed. While this has the advantage of smoothing out the impact of interest rate differences, you may lose your power to negotiate rates and become captive to the situation.
Read also: Swiss housing market outlook, forecasts 2022
3. Don’t just compare interest rates...
Other factors should also be taken into account in your decision-making process. These vary according to the terms and conditions under which the loan is granted and the estimated value of the property.
- Choose your rate type (variable, fixed, SARON1) and term in light of the likely rate trend. This year, most of the major central banks have started to raise their key rates, including in Switzerland, and the trend is expected to continue. This will lead to a gradual rise in mortgage rates, which should be taken into account for both new and renewal loans.
- The rates set by the financial institution for each rate term will also depend on the structure of the institution’s own loan portfolio. Remember to compare the differences between the rate terms.
4. …And compare institutions
Ask for several offers before committing yourself. There may be significant differences between the rates offered by different financial institutions. Also consider including insurance companies in your research as they often have attractive offers. Often, the best way is to use a broker, who will do the work of collecting and comparing offers for you. Having one bank to manage your assets and another bank to manage your mortgage makes sense. It means you can avoid linking your assets to your liabilities and handing over full responsibility for your estate to a single institution.
Read also: Seven questions to ask before buying a property
5. Plan your mortgage payments
The maturity dates for your mortgage loan should be coordinated, as far as possible, with your personal maturity dates (taking the 2nd pillar in the form of capital, probable inheritance, etc.), in order to aid your financial planning.
If you are buying a second home, particularly if it’s abroad, the financing arrangements and type of ownership may have major tax and succession implications.
When considering the division of your estate, or whether to gift a property during your lifetime, bear in mind the value of the property at the time and its future value alongside maintenance costs. This will help avoid nasty surprises.
Buying real estate is an important decision that must be carefully integrated into your wealth planning. Buyers are confronted with a large number of often complex issues, such as financing, rates, amortisation, comparison of services. Because these matters are exceptional and infrequent, buyers’ best interests are served by seeking guidance to ensure that the right options are chosen to meet their specific circumstances.
With our expertise in wealth management, we want to support you in your mortgage financing needs by working with you to find the solution that’s best for you – one that takes into account your overall wealth in addition to your real estate goals. In concrete terms, you can simplify your real estate purchase by entrusting us with the analysis of your project and the development of a range of personalised solutions.
We work with brokers such as MoneyPark to obtain an overview of the market – because we do not provide mortgages ourselves we maintain a neutral position.
Your banker is at your side to discuss your projects, and to make sure that they are well integrated into the overall management of your assets.
Do not hesitate to contact us if you have any questions on this subject.
1 Swiss Average Rate Overnight
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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