Should I pay off or refinance my mortgage?
Is your mortgage deal coming to an end? If so, you can decide whether to pay it off or remortgage. There are a few things to keep in mind, however.
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When a mortgage deal comes to an end, you can either pay it off or refinance it. Various aspects must be taken into account. In addition, it often makes sense not to accept the first offer from your bank if you decide to refinance.
Anyone who took out a ten-year fixed-rate mortgage in 2010 will be faced with the decision of whether to renew or repay it by 2020 at the latest. As a rule, banks contact customers about refinancing shortly before the mortgage is due to end. However, it is better to take action one year before the end of the term in order to define the appropriate refinancing strategy. This way, you won't run the risk of missing the deadline for giving notice to terminate the mortgage. More to the point, it is not always worth staying with your bank when renewing your mortgage. Comparis would be pleased to send you a reminder when it's time to terminate your mortgage. Why not sign up for a free termination reminder?
Save money by comparing
There are countless mortgage lenders on the market. Some of them offer more favourable conditions than your bank. In addition to offering more favourable mortgage rates, some providers also waive the early repayment charge. This is of particular benefit if you are thinking of selling your property.
The search for the best lender is time-consuming and requires specialist knowledge. However, you can also delegate this task to an independent broker.
Repaying instead of renewing
Shouldering debts of several hundred thousand Swiss francs takes time to get used to and may simply be too much of a burden for some. In this respect, it makes sense to be clear about this before buying your own home. Find out more in our article Checklist: what to bear in mind when buying a home.
Nevertheless, if you want to reduce your debt, you must bear the following in mind:
Sufficient liquidity
The capital required to repay the debt is no longer available for other purposes. This is particularly important for homeowners who are about to retire. As a pensioner, a mortgage that has been repaid once cannot be easily increased, since the banks include pension income when calculating affordability.
Pledging your occupational pension
If you have enough cash put aside, you can also pay the money into your occupational pension and pledge this pension. This improves your creditworthiness, which leads to better rates from mortgage lenders. What's more, paying extra into your occupational pension reduces your tax burden.
Tax burden increase
Although making repayments reduces the interest payable, there is less debt and debt interest that you can deduct from assets or income on your tax return. This ultimately increases your tax burden.
Diversification vs. concentration risk
There are risks to having all your assets tied up in a property. The property market is subject to price fluctuations and, in the event of a real estate crisis, your home may suffer a significant loss in value. For this reason, it is advisable to distribute your wealth across different asset classes.