Family Mortgage guide for female owners

Once you have the necessary equity and have made sure you satisfy the conditions for affordability, the next step is to choose the right mortgage. This is because the term and mortgage interest rate model are crucial for the longer-term costs of a mortgage.

There is a whole range of different mortgage models available nowadays, each with different advantages and disadvantages depending on the situation. These two models are the most common:

• Fixed-rate mortgage: here, a fixed interest rate and a fixed term of between two and ten years are defined with the bank. If market interest rates rise, you have nothing to worry about as the borrower. However, fixed-rate mortgages are usually more expensive than money-market financing. In addition, the fixed-rate mortgage is relatively inflexible, and exit costs may be incurred if the contract is terminated early. In addition, there is theoretically a refinancing risk if a mortgage has to be renewed at a higher interest rate at the end of the fixed term.
• SARON mortgage: the SARON mortgage is a money-market mortgage that has an indefinite term and whose interest rate is based on the SARON (Swiss Average Rate Overnight), i.e. it is variable. SARON is the new reference rate in Switzerland to replace the LIBOR as the benchmark interest rate. For a SARON mortgage, the interest period is three months. The interest rate and hence the amount of interest to be paid are determined on the penultimate day of each interest period. In this way, you benefit on the one hand from the unlimited term of the contract and on the other hand from any decreases in interest rates. You can protect yourself from rising interest rates by converting your mortgage to a fixed-rate mortgage when rates rise. A money-market mortgage is currently the most cost-effective form of financing.

In addition, there are other mortgage models and combinations are also possible. The best way to find out which mortgage suits your real estate financing is to arrange a consultation.

Anyone who already has a mortgage knows that a mortgage entails other financial decisions.
These topics should be on your radar:

Amortization: how and when to repay

As with any debt, there is the matter of repayment. If a first and second mortgage have been taken out to finance the property, the second mortgage must be amortized within 15 years or by the age of 65. The amortization of the first mortgage depends on the agreement reached when you sign the contract.

When it comes to amortization, direct repayment is usually the standard option. You can still choose to pay off the debt indirectly from private retirement savings. These are the advantages and disadvantages of direct and indirect amortization:

• Direct amortization: you make regular repayments – usually quarterly – of a fixed amount of the debt. This way, your debt decreases, and so does the amount of mortgage interest owed. But since you can deduct this from your taxes, your tax burden increases. It is advisable to budget the direct amortization carefully and to consider how the repayments will affect other budget items such as pensions or maintenance.
• Indirect amortization: in addition to direct repayment, you can also repay your debt indirectly. To do this, you transfer an amortization amount to pillar 3a, which is pledged to the bank as collateral. This means that your debts remain unchanged. On retirement, the capital paid in in this way then goes directly toward the amortization of the mortgage. In this model, the interest burden is not reduced, but the tax burden does not increase either. In addition, you benefit from a tax exemption on the 3a funds. In the case of indirect amortization, the maximum possible amount per year is the pillar 3a maximum amount (2024: 7,056 francs).

As you can see, the question of amortization depends on the interest rate environment and the tax situation. Repayment reduces the debt and the interest, but you pay more taxes. Another factor to consider is that the capital will be unavailable to you for other profitable investments. You can also read more about amortization here.

Mortgage affordability in old age

Another question that often arises is what needs to be considered after retirement when it comes to mortgages. For example, if you are due to retire in the next 15 years, a shorter amortization period may be required. And even once you have retired, housing costs should not exceed 33 percent of income. Since the second mortgage is amortized on retirement, the interest burden is also lower. But income is also generally lower in retirement.

After the age of 50, it may also be worthwhile to adjust your mortgage strategy. The best way to do this is to talk to an advisor.

Extending, increasing and adjusting a mortgage

Do you want to renovate your house? Or maybe your circumstances haven’t changed at all, but the term of your mortgage is coming to an end. You basically have three options for your mortgage:

• Extending: you can extend your mortgage if your circumstances have not changed much, for instance.
• Increasing: if, on the other hand, you want to finance a renovation or a conversion, you can increase your mortgage. However, the same conditions apply in terms of loan-to-value ratio and affordability as at the beginning of the term.
• Adjusting: to adapt to new living circumstances, for example due to professional or family changes such as a divorce, it may be worth reassessing your mortgage strategy.