Mortgage types explained

Fixed-rate mortgage

With a fixed-rate mortgage, you commit to a set repayment term (between two and ten years), during which time the interest rate remains the same. With interest rates currently being so low, this type of mortgage is particularly attractive, especially those with long terms. 

Libor mortgage

The Libor mortgage has a fixed term (three to five years) and an interest rate that tracks market rates, being adjusted every three to six months. This is the best type of mortgage if you want to benefit from low interest rates, but it can be risky in the long term. 

Variable-rate mortgage

This mortgage has no fixed term and can be terminated at any time providing the required notice is given. The interest rate for variable-rate mortgages is around 2 percentage points higher than that of Saron mortgages and is therefore very high. Most banks only offer variable-rate mortgages for loan amounts of less than 100,000 francs. Variable-rate mortgages tend to be used as a bridging solution (if the current mortgage ends shortly before the sale of the property, for example) or to fund renovation work.

Combinations

Most institutes allow a combination of different models or even promote them actively; for example different terms in a first and second tranche or a fixed mortgage in the first tranche and a variable mortgage in the second tranche. Such combinations can be sensible, as a smart combination can equalise rates or minimise risks. However, with such combinations reduce transparency and therefore the comparability of the offer.

At the same time, this way institutes try to bind you for as long as possible; especially different terms in the different tranches are a popular way of doing so.

Let the institute explain in detail what the advantages as well as possible risks and disadvantages of a combination are. Don’t sign anything that you can’t understand completely.

Split mortgage

With a split mortgage, the mortgage amount is divided into two accounts, with the borrower able to decide on the percentage split (e.g. 50:50).

Special types or special conditions

Many banks offer their own special mortgage types, such as cheaper first-time buyer mortgages, mortgages with incentives for environmentally friendly buildings (Minergie mortgages) or reduced rates for households with children (family mortgages). These are just a few of the most prevalent ones.  Numerous banks and insurance companies offer special models or special conditions. Thereby, these offers are often marketing products. This means that the providers look for a way to offer you especially good conditions for the start of the mortgage.

It is in any case worthwhile to ask for such offers. However, you should take a very close look at the conditions and include these special conditions in the comparison. The conditions are usually only granted for a certain time – after that, the normal conditions apply. This has to be considered in the comparison.

Start mortgage

Most providers offer a so-called Start mortgage as well. This is an interest bonus that is given if you take out a mortgage at a bank for the first time. The bonus is usually only granted for a certain time. The reductions vary strongly from bank to bank. It is worthwhile to take a closer look and calculate.

Family mortgage

Many institutes offer a family mortgage. Thereby, usually an interest bonus is granted if children will be living with you in the property that you would like to finance. Also this reduction is usually only granted for a certain time. Sometimes, each child receives an individual deduction; sometimes the reduction already applies if a family has one or more children.

Minergie mortgage

This is a mortgage that is granted if the property is or was built according to the Minergie standard. If you are thinking of building property, you should consider this model. It is offered by most banks. Examples for ecological requirements are: eco-friendly heating systems, solar technology, air conditioning and refrigeration.

CAP

CAP is an interest rate ceiling or hedge for a LIBOR mortgage, also known as a money market mortgage. It functions as a type of insurance. If you take out a LIBOR mortgage with an interest rate ceiling, the interest rate may not exceed this predefined limit during the agreed term.

Floor

Lower interest limit for a money market mortgage. By waiving cheaper interest rates due to the floor, a reduction of the total interest results for the money market mortgage.

Graduated mortgage

Interest repayments are distributed according to a certain formula over a fixed period. New buyers in particular can make lower repayments at the beginning and gradually increase them over time.