Although the reference rate for mortgages and construction loans in Switzerland has been at a low level for years, the first quarter of 2019 marks a new cost low for such loans:
A mortgage with a five-year term is currently accrued at 0.97%, and a 10-year term at 1.2% interest, according to the standard rate. The general conditions for financing your home or apartment purchase or the new construction of a residential property in Switzerland were therefore never more favorable. What's more, choosing the appropriate financing model can help further reduce the costs incurred. Your realtor at Engel & Völkers Switzerland provides an overview of common mortgage models, and illustrates which individual situation calls for a specific choice of financing.
When financing the purchase of a home or condominium in Switzerland, a distinction is made between two primary loan categories: the fixed-rate mortgage and the Libor mortgage.
The fixed-rate mortgage is a form of financing whose greatest advantage lies in its predictive planning. As the name implies, you agree to a fixed interest rate with the bank, which does not change over the entire term. Especially in low-interest phases, this model can prove to be extremely cost-efficient. As a rule, contract periods of between two and ten years are offered, which can be variably adjusted to your personal financing situation. The same applies in many cases to the repayment or amortization modalities, which are often part of individual contract negotiations.
The LIBOR mortgage as an alternative is defined by variable interest rates, which scale with the current average interest rate of the LIBOR (London Interbank Offered Rate). With such funding, you benefit directly from interest rate cuts that directly affect your loan; However, this also applies in the case of rising interest rates, so that this type of loan requires a certain degree of foresight for future credit market developments if savings potentials are to be used. Such mortgages are given over shorter periods to ensure better planning for both parties. In most cases, the maximum term of a Libor mortgage is three years.
If, on the other hand, you want to build a residential property instead of buying a house or a condominium, you can choose either a construction loan or a mortgage. The main difference lies in the financing mode: While the mortgage is immediately provided to you in the agreed amount, the building loan is granted to your construction account as soon as your equity capital is exhausted - it is therefore "earmarked" and consequently only invoices are paid to do with the construction. The interest rate is also variable, so that the choice of (fixed) mortgage can be useful if rising interest rates are expected or the money is also needed for other expenses. Today, a growing number of home builders are choosing a combination of construction loan and mortgage to maximize flexibility with low interest costs.
While the standard rate of mortgage interest rates in Switzerland has fallen to a record low, a favorable combination of factors can further reduce the actual price of financing. An essential aspect here is the lender himself: According to the experience of Engel & Völkers Switzerland, the difference between expensive and low-cost providers is up to 50% of the total future interest burden. For example, the effective difference between currently 0.56% for five-year and 0.8% for ten-year mortgages at low-cost providers, and 1.2% and 1.5% for the same maturities in the currently most expensive competitors in Switzerland. In addition to banks, it is mainly online providers or insurance companies that are characterized by particularly low interest rates. A well-founded comparison and focused guided negotiations pay off in almost every case.
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