Renewing your mortgage: A few tips
You already know the basics of the Swiss mortgage market and you are looking for advice on how to renew your mortgage? You've come to the right place!
In this article, we'll give you some tips and important points to check when renewing your mortgage – with your initial mortgage provider or a new one.
When should I consider renewing my mortgage?
What penalties may occur if I renew my mortgage before its expiry date?
How much is my house worth now?
How does the tolerance value impact my renewal?
When should I consider renewing my mortgage?
First, if the expiry date of your mortgage is very close, you must renew it.
Otherwise, if you are still two years or less ahead of your mortgage’s expiry date, you can also renew it. In this situation it is recommended that you keep an eye on the mortgage market’s conditions by checking from time to time to see if the interest rates are decreasing and how your financial situation evolves.
But better conditions alone are not enough to consider a renewal: You should renew your mortgage only when the potential savings deriving from the new, more favourable conditions are higher than the penalty fees that may occur when you renew a mortgage.
Simply have a look at the interest rate for which you signed for in your current mortgage contract. Then, ask your bank and other mortgage providers (the ones you asked for offers at the time of signing your current contract as well as new ones) how much they could offer you today.
Apart from those providers, you can also ask our partner Baloise and benefit from a discount on the interest rate: Until 31st December 2023, Baloise offers 0.15% off their (already favourable) mortgage interest rates, only for neon users taking out a mortgage (or renewing an existing one) via the offer code «neon». You can find more information here (in German). And: neon will also pay 250 CHF into your neon account within 6 weeks of taking out the loan, to help you with the furniture.
Plus, you can find some tips from Baloise regarding mortgage renewals in this blog article (in German).
Please note: When you renew your mortgage, the new rate you get will not only depend on the current market conditions and interest rates, but also on the current valuation of your property and your financial situation – we’ll go into more detail on this further below.
Now, after assessing how favourable the new interest rate would be, you should look at any penalty which may occur prior to renewing your mortgage.
What penalties may occur if I renew my mortgage before its expiry date?
If you switch to a new mortgage provider at the end of your mortgage term, you should get no financial penalty.
If you do renew your mortgage before it expires, you might get a penalty, depending on the lender. For instance, some lenders have a fixed fee of 1’000 CHF, while others calculate their penalties based on the opportunity costs (that is, the loss of the capital they could have earned, deriving from your mortgage’s interest). And then again, some lenders apply exceptions in case of a sale. Of course, you will need to double check this by looking at your contract in detail or by asking a mortgage expert.
Also, if your fixed-rate mortgage does not complete its agreed term, you should look closely at any notice period that might be specified in your mortgage contract. The deadline is often 3 or 6 months. And in this case, costs will most likely be incurred. An early repayment penalty would have to be paid based on the remaining unexpired term and the market interest rate.
Another type of penalty might be more administrative fees: For example, if the land registry charges a fee for recording the details of a new creditor once you switch your mortgage provider.
How much is my house worth now?
To renew your mortgage on the best terms, you need to know how mortgage providers look at your property. And there are big differences in property valuation depending on the valuation method and the mortgage provider. Hence, here are some tips on which valuation is suitable and when.
The property value estimates of sellers, buyers, and mortgage lenders often differ.
For mortgage borrowers, the property value is particularly important, because it influences the loan-to-value (LTV) ratio. (If you don’t remember what the LTV ratio is, you can read our blog post explaining it – right here).
As a borrower and property owner, you can benefit when renewing the mortgage if the property value has risen since the last closing. This lowers the LTV ratio and many providers offer interest rate discounts for loan-to-value ratios below 66.67%. You can also use this occasion to increase your mortgage and raise money for further renovations or purchases.
There are different methods to assess your property’s value. But before we have a closer look at them, you need to know that these valuations are always a range and that there is a tolerance value which can be 10% or even 20%. There is no absolute price for a property value. Now, let’s look at the most common property valuation methods in use:
The majority of lenders use the so-called hedonic method of property valuation. These are provided by companies such as Wüest & Partner, IAZI/CIFI, PriceHubble or Fahrländer, which put your property in relation to thousands of others and determine the value based on an algorithm. You can use a hedonic valuation tool for free, for example the one provided by our partner MoneyPark.
Please note: For special, atypical properties, the estimated value can deviate significantly from the market value. Therefore, in such cases, asking an expert is recommended. In addition to the location and furnishings of the property, the expert also assesses the building fabric and the investments made in recent years.
With the help of financial-mathematical formulas, experts can calculate the value of the property and detail their findings in an appraisal in which both value-increasing and value-decreasing factors are shown. Depending on the property, the costs of an expert appraisal can start at 1’000 CHF or more.
In this regard, the offer of our partner MoneyPark could be interesting for you: MoneyPark provides impartial advice by comparing the mortgage offers of more than 150 financial institutions across Switzerland. Plus, together with MoneyPark and until 31st December 2023, neon covers the costs of a personalised consultation with a MoneyPark mortgage expert: Moneypark offers you a 50% discount on the cost, and neon refunds you the rest on your neon account within 6 weeks after you closed the mortgage with MoneyPark. You can find more details here.
How does the tolerance value impact my renewal?
As mentioned, property valuations are always a range and there is a tolerance value that can be 10% or even 20%.
Since the tolerance value can vary greatly from one provider to another, the choice of provider for your renewed mortgage has a great impact on your finances. Therefore, by comparing different offers, you’ll increase your chances to get the best deal – just like when you first negotiated your mortgage.
Remember: You can do so by asking our partner MoneyPark to compare the mortgage offers of over 150 providers in Switzerland and benefit from their special offer with neon until 31st December 2023 (more information here).
Or, if you already know what type of mortgage you’re looking for, you can also have a look at our offer with our partner Baloise: If you take out a mortgage with Baloise until 31st December 2023 with the offer code «neon», Baloise offers you 0.15% off their already favourable mortgage interest rates (more information here, in German).
You have further questions on mortgages or would like to review the basics of the mortgage market? Simply click here to read our dedicated blog article.
Remember: Even if we try to lighten up the Swiss mortgage landscape for you in this blog, it will always remain a blend of options, risks, and rewards.
All the best for your mortgage renewal!
NB: With our partnerships with MoneyPark and Baloise, we also earn some money. Just like with all our partners.