Understanding the factors that cause mortgage rates to fluctuate can help you choose the right type of mortgage loan for you.
The Swiss National Bank (SNB) sets the government’s policy interest rate, which directly influences the rate at which banks can obtain funding. When the SNB raises rates to fight inflation, for example, mortgage rates tend to rise as well – and vice versa.
Long-term mortgage rates are affected by Swiss government bond yields. When investors expect economic growth or inflation to increase, bond yields rise, which pushes up fixed rates.
The interest rate you are offered also depends on the loan-to-value ratio (the proportion of the property’s total value that is borrowed), your financial capacity, and your credit history.
On top of these factors, mortgage rates include a margin set by the lending bank. The amount of this margin is determined by the bank’s operating costs and business strategy.
A shorter term (2 to 5 years) gives you more flexibility to renegotiate your interest rate if mortgage rates drop. On the other hand, you could also end up with a higher rate if interest rates rise.
A longer term (7 to 10 years) gives you greater long-term security, but you’ll pay a slightly higher interest rate. There is no one right answer: your choice will depend on your market expectations, your risk tolerance, and your personal circumstances.
Yes, it's actually quite common. Mortgage loans are often divided into two tranches, with the first one covering up to 65% of the property’s value, for example, and the second one covering the rest of the borrowed amount (which cannot exceed 80% of the property value). The tranches can be structured with different maturities and interest rates so that the overall loan better suits your needs.
Again, there is no one right answer. Locking in a rate early protects you against future rate increases, but you’ll forgo any savings you would have captured if rates decline. The key is to assess your risk tolerance, your loan term, and your ability to handle changes in your mortgage payments.
Six to twelve months before the maturity date, you should contact your advisor to talk about renewing your loan. This is also a good time to reassess your situation. For example, you may want to apply for a mortgage increase to finance renovations.
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