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 mortgage interest rate model and the term are crucial for the costs of a mortgage.

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

• Fixed-rate mortgage: here, a fixed interest rate and a fixed term of between two and ten years are defined. If market interest rates rise, you as the borrower are on the safe side. However, this security comes at a price. Fixed-rate mortgages are usually more expensive than money-market financing (e.g. SARON). In addition, a fixed-rate mortgage is relatively inflexible and exit costs may be incurred if the contract is terminated prematurely. There is also 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). The mortgage interest rate is therefore variable. 

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. This allows you to benefit from the unlimited term of the contract as well as from any decreases in interest rates. However, higher interest rates will also increase your interest costs. SARON mortgages can be converted into a fixed-rate mortgage. 

There are also other mortgage models and combinations of different terms are possible. The choice of the right mortgage model depends on your individual situation. This is analyzed in detail in a consultation during which suitable models are presented with both their advantages and disadvantages. Take advantage of advice from our experts.  

Once you have taken out your mortgage, further financial decisions follow. You should keep the following topics 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, i.e. repaid, within 15 years or by the age of 65. The amortization of the first mortgage depends on the agreement reached when you signed the contract. 

When it comes to amortization, direct repayment is usually the standard option. There is also the option to pay off the debt indirectly from your private retirement savings (assets in pillar 3). These are the advantages and disadvantages of direct and indirect amortization: 

• Direct amortization: you make regular payments, usually on a quarterly basis, of a fixed amount of the debt. This way, your debt decreases, and thus so does the amount of mortgage interest owed. However, as 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 repayment will affect other budget items such as pensions or maintenance costs.
• 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 your debt remains unchanged. On retirement, the capital paid in this way goes directly toward the amortization of the mortgage. Under this model, the interest burden is not reduced, but your tax burden does not increase either. In addition, you benefit from a tax exemption on the pillar 3a funds. In the case of indirect amortization, the maximum possible amount per year is the pillar 3 maximum amount (2025: CHF 7,258).

As you can see, the question of amortization depends greatly on the interest rate environment and the tax situation.  While repayment reduces the debt and the interest burden, it leads to a higher tax burden. 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. Even once you have retired, housing costs should not exceed 33% of your gross income. As most retirees have a lower household income than before retirement, affordability must be recalculated. If you are due to retire in the next 15 years, a shorter amortization period may be required. It may therefore be worthwhile adjusting your mortgage strategy after the age of 50. The best way to do this is to talk to a UBS advisor. 

Extending, increasing or adjusting a mortgage

Do you want to renovate your home? Or perhaps your circumstances have not changed at all, but the term of your mortgage is coming to an end? When it comes to making changes to your mortgage, you basically have three options: 

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