Volatile interest rate markets, which mortgage should I get?
The current volatile interest rate environment confronts many people with a difficult decision: Is it better at the moment to take out a cheaper SARON mortgage or perhaps to play it safe and make a long-term commitment by opting for a fixed-rate mortgage? Or maybe it would be better to take out a hybrid mortgage? Each mortgage model has its advantages and disadvantages, but one thing is certain: the choice of the right strategy depends entirely on individual preferences and personal circumstances.
Strategy 1: 100% in SARON
The SARON mortgage enjoys great popularity, especially in times of volatile interest rates, as it is historically more attractive than fixed-rate mortgages. It is particularly suitable for people who do not want to make a long-term commitment and attach great importance to flexibility. However, it must be said that interest rate fluctuations can indeed occur and clients who opt for a SARON mortgage must be able to bear them. This is of especially the case if a 100% SARON strategy is chosen. It is therefore recommended that a budget is drawn up with an imputed buffer, for example at interest rates between 2.50% – 3.00%. Last but not least, this flexible type of financing is primarily suitable for people who actively follow what is happening on the money and capital markets and thus do not want to miss the opportunity to switch part or all of their mortgage to a fixed-rate mortgage. If the affordability is tight (> 33.00%), you should think carefully about taking out part of your mortgage in the form of a fixed-rate mortgage so that the costs of owning your own home do not go through the roof when interest rates rise sharply.
Strategy 2: 100% in a fixed-rate mortgage
Fixed-rate mortgages also have certain advantages. One of the most important factors why many clients opt for a fixed-rate mortgage is the planning security factor. Only with a fixed-rate mortgage is it possible to establish a clear budget for the interest burden in the coming years. Accordingly, this type of financing is particularly suitable for people who do not want to be surprised by interest rate fluctuations and would rather be on the safe side. People with a fixed-rate mortgage do not have to fear rising interest rates during the term of the contract, as only the fixed interest rate has to be paid during the term of the contract.
However, fixed-rate mortgages are only suitable to a limited extent for people who cannot estimate the long-term nature of their home purchase. If, for example, emigration plans or job rotations abroad are possible scenarios, then in the case of an early termination of the fixed-rate mortgage, sometimes high costs have to be paid due to the early repayment penalty. However, it is important to know that paying the early repayment penalty is only one of three possible options for ending the fixed-rate mortgage early:
Option 1: Transfer the fixed-rate mortgage (for the remaining term) to a new home in Switzerland.
Option 2: Transfer of the fixed-rate mortgage to the new buyer
Option 3: Early termination and payment of any early repayment penalty
Strategy 3: Mix of 50% SARON and 50% fixed-rate mortgage
In the current market environment, many clients find it difficult to decide whether to opt for a 100% fixed-rate mortgage or a 100% Saron mortgage. In such a case, it is worth considering splitting the mortgage into different tranches and taking out a hybrid of the two. The decision to take out part of the mortgage volume in a SARON mortgage and the other part in a fixed-rate mortgage again has several advantages. For example, splitting the mortgage prevents the entire mortgage from having to be extended during a period of high interest rates. In addition, you can deal more flexibly with changing life situations. Partial repayments of the mortgage are also easier, as you can benefit from the conditions of the different mortgage forms. Last but not least, a mixed form of mortgage can help to balance out the constantly changing interest rate environment and the fluctuations that come with it.
In conclusion, no matter which mortgage model you choose, it is important to find out about its advantages and disadvantages. It is also very important to compare different providers. Let us analyse your risk tolerance and security needs together so that you can finally conclude the mortgage that is right for you.
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