The five golden rules of mortgage lending

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The five golden rules of mortgage lending

Most of our clients living in Switzerland are, or wish to become, homeowners and we help them achieve their ambitions.

Read our top five tips when it comes to mortgage financing.


1. Choose the right type of loan

For construction projects, banks often offer building loans. Their advantage is that the debt only accrues as and when the invoices for the building site are received. Beware, however. The interest rates are often high. A Lombard loan (a line on your portfolio) can also be an interesting alternative for such projects. If you opt for a building loan, carefully check the terms and conditions and interest rates that 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 a loan divided into a number of slices. 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.

Loans that are divided into a number of slices have the advantage of smoothing out the impact of interest rate differences…but you may lose your power to negotiate rates and become captive to the situation.

3. Don’t just compare rates...

Other factors that should be taken into account in your decision-making process. This varies from the terms and conditions under which the loan is granted and the estimated value of the property by the financial institution.

  • Choose your rate type (variable, fixed, LIBOR1 and its term in the light of the likely rate trend. For example, rates seem to be at their lowest today, so it may be wise to convert a variable rate into a fixed rate. In some cases, it may even be worthwhile to break a fixed-rate loan early and renew it on preferential terms.
  • The rates set by the financial institution for each rate term will also depend on the structure of its own loan portfolio. Remember to compare the differences between the rate terms. For example, a ten-year rate is often more expensive proportionally, so it may be advantageous to look at a nine or eleven year term.


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. The best way is to use a broker, who will do the work of collecting and comparing offers on your behalf. Having one bank to manage your assets and another bank to manage your mortgage does make sense. It means you can avoid linking your assets to your liabilities and handing over full responsibility of your estate to a single institution.

Ask for several offers before committing yourself.

5. Plan!

The maturity dates for your mortgage loan should be coordinated, as far as possible, with your personal maturity dates (supplementary pension capital payout date, probable inheritance, etc.), in order to aid your financial planning.

If you are buying a second home, particularly if it’s abroad, the type of financing and type of ownership may have major tax and succession implications.

The maturity dates for your mortgage loan should be coordinated, as far as possible, with your personal maturity dates in order to aid your financial planning.

In the case of dividing up your estate or should you 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 in avoiding any nasty surprises.


Point of note

Purchasing a property is an important step that must form a coherent part of your estate. We, at Lombard Odier, can assist you with all your mortgage financing needs thanks to our partnership with MoneyPark and our expertise as a private bank. Your banker is on hand to discuss your projects and ensure that they are seamlessly integrated into your wealth management planning.

Please feel free to contact us if you have any questions.

1 London Inter-Bank Offered Rate

 

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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