I know one who recently took the fixed rate and one who had libor/saron his entire life (or for 30 years).
Yes, maybe if you have high income, or two high incomes, and you’re perhaps not too highly leveraged, then you can take that risk. It’s a good point about the mortgage running out. That’s why I would probably fix it for as long as I can, like 15 years, and if the rates were too high in 15 years, I would pay if off. Then remortgage again once things settle down, or not, depending on the stock market situation.
Also one has to keep in mind that banks will try to sell you (with an incentive) mixed maturities instead of one single mortgage tranche as a means to lock you in forever (unless you make it so that all maturities are synchronized you will never leave). Working in that business (from an IT side) I still see people going for it and taking mixes of 3, 5 and 10 years although with the current spread between Saron and short term maturities that does not make any sense.
Can you please elaborate this?
I always tried to figured out if it makes sense or not to fix half at 5 years and the rest at 10 years. The only scenario that I see, it’s when the interest rate goes always up and you want to re-negotiate it sooner, so after 10 years you don’t have a big raise.
In reality it will fluctuate, so …I’m not sure how I should look at it
I think this makes sense.
The size probably it’s the big difference for me. I don’t have a big percentage in risky assets (if you don’t consider VT risky ) and having >700k exposed to the present economy, it makes me nervous to say the least
In addition you can always take profit or cut losses with stocks, while you cannot really change strategy with the mortgage.
The fix maturity mix might make sense when the spread between short term maturities and money market is low but for instance mid June the 3 year CHF IRS was around 1.4% while SARON is still negative so unless SARON goes well over 1.4% within the next 3 years to compensate that spread there’s no point in taking a 3 year maturity compared to a SARON and in that case if you want a mix instead of going for a short term maturity like a 3 year one I would take a SARON tranche in the mix. In any case you’ll have to renew in 3 years if you go for that 3 year maturity as part of the mix and the rate risk over a 3 year period is not high when comparing it to a 10 year period. It’s always a question of risk ratio between the rate spread and the fix rate duration. That worked the same a couple of years back when you could secure a fix rate for 25 years at 0.9 %, there was no point of taking a SARON for 0.6%
Well, I’m not using variable rate leverage in my investments. I’m afraid of the unknown. But yeah, maybe it’s an irrational fear. Historically you are right, libor/saron was the better choice than a fixed rate, because the rates were going lower and lower. If in the future this is still the reality is hard to say.
What I mean is: if the house is worth more than the mortgage, then someone else might be willing to buy it. But what if it’s less and you can’t meet your payments? Will the bank try to give you some special conditions that you’re able to pay? But what happens if you don’t want to keep paying, can you let them have the flat and be free of the mortgage?
So same as in Poland. I thought it’s different here. In Poland they say “oh it’s much more civilized in the West, you can get a fixed term mortgage, and if you can’t pay back, it’s the bank’s problem, because you can just return the flat to the bank together with the flat”.
It’s not an irrational fear. It’s just not very realistic in Switzerland due to its specific economic situation and decent monetary policies - in Poland we had hyperinflation twice in the XX century and multiple periods of insane rates (even now they are becoming more and more unsustainable), and even in US, there was a period of 20% interest rates. I think it’s legitimate fear - just not very much so in Switzerland.
SARON is the best long run financially if you’re a high income earner. Go with whatever allows you to sleep better.
We got 0.9% for 10 years 2 years ago. Makes budgeting easier. Let’s look at the rates in 8 years. Might switch to Saron yet.
I wish we’d gone with Saron, though. The best thing about Saron is that you can get out of the mortgage within a short period and can move when you want, and you can pay it down as soon as you want.
This. Also when selling the property, there is zero hassle. So I would be careful with statements like “fixing the mortgage for 15-25 years makes the most sense” which we saw in this thread.
Just to complete my statement for the 25 year fix, up to my knowledge only Swisslife allows it and in their conditions (at least that’s still the case now) you are allowed to sell the house without early repayment charges. They are maybe the only ones allowing this, as you point out that’s not the case with a bank and that can be really expensive indeed.
15-25 years can be a third of your remaining lifetime when you buy. This is a reaaaally long time.
There is a thing I call location risk that many forget when they buy a property. You are not only a place to live, but also the location:
Your neighborhood: If they start building a lot of nice new places nearby, your property is going to lose value all else equal.
Your neighbors: If they are unpleasant, you’re not gonna have a lot of fun. My mum can tell you some tales about that.
The labor market: If your skills go out of demand where you live, it’s not great being stuck with a long mortgage. People who own are empirically less likely to move to get a better job.
Other stuff such as schools and other infrastructure should not be forgotten.
A Saron or a mortgage with a free cancellation policy can go a long way towards mitigating those risks. Also make sure that you can transfer the mortgage to a new property if needed.
I wouldn’t go again for a 10-year-mortgage.
This was also important to us. Our apartment combined with a Saron mortgage is really close to the flexibility you have with a rented apartment.
Maybe we’ll need to move due to a great job offer. Maybe we don’t like how the Gemeinde develops (political decisions, school problems etc.). Maybe we’ll get the opportunity to buy construction land in a nice place and then build a house.
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) and having >700k exposed to the present economy, it makes me nervous to say the least 
