Renewal of Morgage in 3 years: please advice

Real Estate
1

Hi Everyone,

This September, my new mortgage will be start. Due to the market conditions, I opted for a fix 3Y at 2.9%
In this mortgage (850K CHF), I have a pleding of the 2Pillar (50K) and the indirect ammortizaiton with the 3A.

I know that these are not optimal figures, but this is what the market and my specific condition allowed me to do. I got a lot of lessons learnt of this exercise and I want to try to clean it up and prepare for the next round, possible way better. But I need some advises from you, please, to better understand.

Mortgage Renegotiation/Renewal. In 2 years from now, I will be actively starting to seek for new options to renew/renegotiate the mortage, with the same or with another bank. I also want to get rid of the 3A (done with the same bank providing the mortgage), as I relized was not a good option for me (life-insurance policy, etc. etc.).

Question1: in case I opt for a new bank, can I decide to bring, for example, +80KCHF and reduce the mortgage to 720K CHF, right?
Question2: what will happen to the 3A Pillar used for the ammortization? I understand I cannot change the 3A if this is used as indirect ammortization. But if I decide for another bank, do I need to “pay-back” the 3 years of ammortization or what?
Question 3: direct vs indirect ammortization. This time I will opt for a direct ammortization, or consider to fit the gap with the amortization (in my case, 90K CHF). In this case, I would only pay the mortgage intererest of 720K at the % interest rates which will be in future available: is that correct?

Thanks in advance for your inputs
Best,
Cappuccio

2

Hi everyone

Lifting the thread up :slight_smile:
I see the rates this period for the same condition, are more than half lower than my current rate (1.20% for 3Y, 1.45 for 8Y).

I still have 18-month to decide, but I wonder if it is wise to evaluate to block the % rate around June 2025, when it is expected to get a lower curve on the swap, as I could read into different FC analysis.

I recall like it was yesterday, all the stress I had when deciding when to lock the rate, in 2023: I was monitoring on a regular basis the rates of several banks, to decide the good moment. Blocking at 2.9, it says all.

This time, I want no stress. BUt at the same, I do not want regrets in case I block quite in advance (more than 12-month) and the eventually see the rates going down 0.5%. Of course, it could be also the way round, going +0.5 or higher.

Given the “low” interest rates, I would not opt to put in money to reduce the debt, as I better keep the money working while invested.

I wonder what might be your advice: anticipate the lock of rates rather than wait, and prefer a shorten period instead of the “classic” 10Y.
My idea, is to lock for 8-10 Y, with a interest of 1.20-1.30% (today, my current bank offers 1.60%, forward included, for 10Y), which is already a very good rate, compared to what I do have now (2.9% 3Y). This 0.3% would help to save 25K in 10Y.

The consultang, said categorically that the rates won’t go back to 0.xx like in the previous year, as it was really an exception. Not sure I want to trust him, as he was the one telling me in 2023 to block the rate for 10Y due to the usual blabla (you never know here, and there).
But on the same, when I look at the analysis of 3 different banks, the FC of the swap for 2025-2026 for 10Y goes around 0.5-0.7, so not in the negative territory.

Thank you in advance
Best,
C.

3

Being straight here based on what you write: you don’t have the profile to wait. Thus I would lock for 10 years as soon as you can with that forward offer. Waiting could take your 10 year close to 1% or even lower but you also take the risk of seeing the rates go back to 2% and I believe waiting will eat you brain. Interests are still deductible from taxes so the risk to wait for lower is in my opinion not worth the psychological hassle… And git rid of your consultant, I’m sure you’ll find better advise here, at least no one here is paid on your decisions.

3 Likes
4

I’d take the 8 year now. A bird in the hand…

1 Like
5

Thanks for your replies.

After keeping the monitoring of the rates on a daily basis :slight_smile: I noticed last week the lower range was reached since the last 4 months, so I asked for the offer, with forward included.

1.50 10Y, 1.40 9Y, 1.36Y 8Y, 1.37 7Y, 1.26 6Y, 1.22 5Y.

My intention is to block either the 9Y at 1.40%, which is still “higher” compared to what I was expecting (1.20/1.30), but still withinthe psicologically territory of “lower” than 1.50, which is the value I was hoping, in 2023 when I fixed the mortgage for 3Y, to find at the time of the renegotiation.

I checked in various source the FC of the % rates, and knowing these are estimation and not factoring situation which only a crystal ball could spot, the swap is expected to lower by 0.10 /0.30. But from the other side, can even go up, and more than such a range.

So the considerations I use to validate my toughts are:

  • Considering the current a 3% interest rate, whatever below that value, is good.
  • every 0.10% difference in the rate, is circa 8.5K CHF 10Y saving. Simulating the tax deduction and progression, potential saving is circa 5.5K CHF 10Y.
  • at the end of the contract (whatever duration/condition), situation is always not easy predictable: in 2035 who knows if the rates will be still in this range (1.0 / 2.0). Looking at the last 10Y historical (2015-2025), an average was circa 1.5 (higher 3.3, lower 0.8). What I consider now “fair”, it might be a super opportunity, or an acceptable deal.
  • Horizon of 10Y gives also the time and the instrument to keep an eye (not regularly like I do now) to see the trend and take a decision, when approaching the renegotiation, to de-invest and with that, reduce the debit in case interests goes up to 4 (or higher).

Bottom line, I was hoping to block at 1.20-1.30 for 9 or 10Y. I can block now, but with a difference of 0.20%, which makes a difference of c.ca 10K over 10Y.
From the other side, the rates could go up by 0.20-0.30 (peak this year was 1.87, beginnin of March), meaning risk of paying an extra 20K over 10Y.
It is now really a risk appetite decision point: take the call now (situaiton is not perfect, but quite fair, with 1.40% 9Y), or risk to eventually save 5-10K (over 9Y) or pay an extra of 5-20K (both over 9Y).