Residential property Extending a mortgage: your options at a glance
How and when can you extend your mortgage? What are your options?
Content:
Content:
- Extending your mortgage early can pay off.
- How do interest rates affect your decision to extend your mortgage?
- Not only is it possible to extend your mortgage, you can also increase or reduce it.
- Learn the possible pitfalls and risks of an extension.
- To the conclusion.
As soon as your mortgage approaches the end of its term, you can adapt the existing financing to your current circumstances. Your client advisor will help you do so. Here’s what you should know if you renew a mortgage or extend it before it ends.
Every fixed-term mortgage is subject to a specific term. Your credit agreement tells you when your mortgage or a mortgage tranche expires. Your client advisor will contact you at least a couple of months in advance to remind you.
Perhaps there are also private or professional reasons to adapt your mortgage to new life circumstances?
Before extending, you can consider the question of the desired term and the possibility of agreeing on several tranches. It is also possible to reduce your mortgage before extending it through amortization. Based on these considerations, you will find the right follow-up financing in good time.
Are there advantages to extending your mortgage early?
Are there advantages to extending your mortgage early?
With UBS, you can take out a follow-up mortgage twelve months before your current mortgage expires and secure a fixed interest rate for the entire term. If you believe that interest rates are likely to rise, this represents an interesting option. Earlier extensions are also possible on request.
You can also replace your expiring mortgage with two fixed-rate mortgages with different terms. This gives you extra peace of mind, as only part of your mortgage debt needs to be refinanced after one of the two mortgages expires.
How do current interest rates affect your decision to extend your mortgage?
How do current interest rates affect your decision to extend your mortgage?
In recent years, interest rates in Switzerland have been at a historic low. The key interest rate was below 1% at the end of 2008 and even lower than 0% at the end of 2014. Since June 2022, this trend has reversed and the Swiss National Bank has raised the key interest rate several times. In November 2023 it was 1.75%.
This trend means that mortgage interest rates have also risen. The variable interest rates on SARON mortgages, which were stable for many years, have increased. This also applies to the fixed interest rates that are on offer when extending a mortgage. If you include not only the trend, but also the level of interest rates in your decision, current interest rate offers can still appear favorable by historical standards. Banks continue to calculate the imputed interest rate at 5% in their affordability assessments. It is no more difficult to clear this hurdle than previously, as current mortgage interest rates are far from this level. However, if you extend your mortgage under the current conditions, you can expect a higher interest rate than before.
What is the best way to deal with the rise in interest rates? Many borrowers choose shorter terms when interest rates are high. On the one hand, the interest rate is then somewhat cheaper than with a longer term. On the other hand, there is the option of a cheaper mortgage extension earlier than usual if interest rates have fallen again by the end of the term. An extension of the fixed-rate mortgage at current conditions is also an option with longer terms if market interest rates continue to rise during the term. In this case, you will have locked in the current interest rate. Conversely, you may want to consider a SARON mortgage with an adjustable rate if you believe interest rates are more likely to fall. The interest rates on SARON mortgages are adjusted every three months and can go up as well as down.
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When your mortgage expires you have three options
When your mortgage expires you have three options
Extend your mortgage like for like
The arrangements require less effort than when negotiating the first mortgage. The bank already has all the documents available and the mortgage amount has usually been reduced due to amortization.
Increase your mortgage
If you decide to extend your mortgage, we will also show you the options for increasing it. An increase can provide the required financial leeway if you want to renovate or remodel your home.
Adjust your mortgage strategy
Over the years, our life circumstances change, and so do interest rates. Maybe you’ve started a family, your children have become financially independent, your professional circumstances have improved or you are approaching retirement.
Together we can adjust your mortgage strategy to your current circumstances. We will check whether a different mortgage model is better for you or whether you should split your mortgage between different products and terms. Your mortgage could then continue in several tranches.
Potential pitfalls and risks when extending
Potential pitfalls and risks when extending
If you forgot your mortgage was about to end, you will miss out on the options that are only available if you take action early, such as early extension or a relaxed search for a suitable offer.
One potential pitfall for optimally extending a mortgage is missing the end of the term. If your mortgage expires without you having arranged follow-up financing with UBS, the mortgage will be due for replacement. With other providers, your fixed-rate mortgage can be automatically converted into a variable-rate mortgage. Depending on the development of interest rates, the variable interest rate may be higher than that of the expired fixed-rate mortgage. Every three months, the variable interest rate is adjusted according to the market situation, and can rise, fall or stay the same.
Fixed-rate mortgages always carry the risk that the interest rate may fall. If market interest rates fall and you have a fixed-rate mortgage, you will continue to pay the higher rate that was agreed at the time. The forward surcharge for an early extension will also remain in place, further widening the interest rate differential to the market level. Review the potential advantages and disadvantages for yourself. Perhaps you do not need the risk protection of a fixed-rate mortgage and can shoulder the fluctuating interest charges of a SARON mortgage.
Would you like to extend your mortgage?
Would you like to extend your mortgage?
We'll be happy to help you review your current circumstances and discuss the possibility of an extension.
The expression “time is money” is literally true when extending a mortgage. If you use the time before the end of the term to inform yourself, you will have more and better options as to how to proceed with the mortgage in the following years. Despite the rise in interest rates, there are good prospects for suitable, affordable follow-up financing if you prepare thoroughly.
