Mortgage strategy with current geopolitical situation

Real Estate
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@JMH @Butch @FrankenStache : thank you all for your valuable input. I can see the point that negotiation may be more difficult if you have multiple tranches with different durations. But let’s assume you have only one fixed rate mortagage. And by the time you have to renew rates have increased significantly? What would one do in this situation: take a new very short-duration fixed rate and hope that the rates go down by the time the short-duration loan ends and then take a longer fixed rate loan? Or take a SARON and convert it once the rates drop? Just wondering what the strategy would be if your single fixed rate tranche expires at a very bad time point.

Also another advantage with having multiple tranches, is that you have some flexibility to amortize part of the loan at different time points (depending how your wealth develops in the upcoming years). This would be also an argument for having multiple tranches.

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While in the near term, the rates look fixed at 0%, I guess the Iran factor is a wildcard.

Even still, assuming I can get a fix of 1.5% for 10 years or a margin of 1% on SARON, I’d rather not take the risk and pay the extra 0.5% and not have to worry about it. No need to take unnecessary risks when fixed rates are so low.

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23

You can lock in rates 18 months in advance or even longer. So if rates are low at any point 2 years before renewal, you can lock them in. If they are bad the entire 24 months before renewal, then I would pay off the mortgage using pension fund.

24

For me, between Saron and fixed rate depends on the respective rates and if I felt it was going higher or not, but strategically yes: short duration « holding pattern » to see when the rates permit another fixed term.

As @PhilMongoose says above, I also tend to start to negociate as soon as the window opens so that I have some buffer to wait if the initial négociations aren’t what I want « 18months » before the actual date. However I haven’t yet paid down more than necessary to stop amortisation but a also prefer a small difference to get a fixed rate than Saron (personal preference)…I don’t expect this to change with the end of the valeur locatif/deductions but it’s an option I’ll consider.

25

I would take max SARON (assuming your income/assets comfortably support that). I don’t buy into multiple tranches as a way to have flexibility to amortize - I’d much rather have that flexibility option with SARON.

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26

One potential reason to fix is to fix so that the tranche becomes due in a year you will amortize with pension withdrawal.

1 Like
27

That’s a good one. My wife and I early on said “we’re not going to touch our pension” (conservative us) and will pay the mortgage from our regular income. In due course I may need to revisit that and see if there’s a tax advantage which we’re missing.

28

It could be useful for a staggered withdrawal strategy. Where I am, the tax jumps for withdrawals over 400k, so it makes sense to break withdrawals into 400k chunks for each year if possible.

Creating a 400k tranche to become due at the right year is an easy way to do that.

1 Like