9. Fixed-rate mortgage or SARON?
A fixed-rate mortgage differs from a SARON mortgage mainly with regard to predictability. With a fixed-rate mortgage, the interest rate remains the same for the full term, from two to ten years. This gives you peace of mind and is an advantage when interest rates rise. UBS SARON mortgages have a variable interest rate and are for an indefinite period. The interest rate comprises the SARON Compound rate plus an agreed fixed margin. SARON mortgages make sense when falling or stable interest rates are expected and borrowers have a certain amount of financial leeway.
10. Mortgage: short or long term?
Fixed-rate mortgages are usually offered with terms of between two and ten years. The longer the term, the higher the interest rate. The main reason for this is the safety margin, i.e, the additional price paid by the borrower for a guaranteed interest rate. The drawback of a longer term is of course less flexibility. If a mortgaged home is sold well before the end of the mortgage term, the early redemption of the loan can be expensive for the borrower.
11. What happens after the purchase?
Things are easy for renters: there’s the rent and the bills and that’s it. Costs are more complicated for homeowners. In addition to the bills for water, electricity and heating, there are also the mortgage interest and repayment costs, insurance premiums, potentially higher taxes and reserves for maintenance and renovation. Homeowners often underestimate the latter items. This can lead to problems when major renovation work is suddenly required.
12. How will my tax situation change?
Buying a house or apartment will directly impact your tax liability. On the one hand, your taxable income will increase by the imputed rental value. However, the costs of maintenance and renovation, mortgage interest and indirect amortizations are all tax-deductible. Due to current low interest rates, overall your taxable income will in many cases be higher, leading to a higher tax bill. Furthermore, future amortizations will lead to a reduction in mortgage interest debt. This will reduce the amount of tax-deductible debt interest, which in turn will also result in higher income taxes.