What you need to know about splitting your mortgage into tranches
When getting financing for your home you probably heard talk of "tranches". But what exactly does splitting your mortgage into tranches mean? Comparis explains.
19.07.2022
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1. Splitting a mortgage into tranches
In Switzerland, a mortgage is usually divided into different tranches. The individual tranches have different terms. This distribution means that you can react more flexibly to the interest rate situation and individual life events.
2. Does splitting your mortgage make sense?
Different tranches can make sense especially if the renewal of the mortgage falls in a high interest phase. It means that you don't have to extend the mortgage all at once. So the entire loan does not become more expensive in one fell swoop. In addition, splitting your mortgage allows you a certain flexibility. For example, your financial situation improves because you are left some money, and you can pay off the mortgage earlier.
For mortgages over CHF 600,000, division into three tranches is recommended. For smaller mortgages, a maximum of two tranches make sense. With a mortgage of less than 250,000 francs, it is usually not worth splitting it into tranches. This is because it ties you to your lender for a longer period of time. You can only switch to a lower-cost lender if all tranches have expired.
Want to split your mortgage and switch lender?
If all tranches end within twelve months of each other, the whole mortgage can usually be transferred to a new lender without too much trouble. Banks tend to be lenient in such cases, but you will usually have to commit yourself to refinancing all of the tranches.
Follow-on financing becomes a problem if the tranches end on dates more than twelve months apart. This is because most lenders are not prepared to take on just an individual tranche.
Some providers allow the change within 24 or 36 months. You should therefore find out the exact terms of the contract before splitting your mortgage. It's worth remembering that you pay a handling fee of several hundred francs after the end of each tranche.
3. Refinancing a staggered mortgage: what you need to know
Extend the maturing tranche(s) so that all tranches mature as close together as possible or within a maximum of twelve months of each other. The following example shows why this is important:
Mortgage of CHF 800,000 in 2 tranches / Start: 2017
| Tranche 1 | Tranche 2 | |
|---|---|---|
| Amount | CHF 400,000 | CHF 400,000 |
| Term | 5 years (until 2022) | 10 years (until 2027) |
| Possible change of lender | 2027 | 2027 |
In order to be able to refinance the entire mortgage at the end of the ten-year tranche, you would need to extend your first tranche by an additional five years. As a result, both tranches will expire in 2027. Only then can you arrange financing with a new lender.
Tip: We recommend that you look into possible follow-up solutions twelve months before the end of the financing period.
4. Conclusion: should you split your mortgage, or not?
| Advantages of splitting your mortgage | Disadvantages of splitting your mortgage |
|---|---|
| You don't have to extend the entire mortgage all at once. | You will usually not be able to change lender when the first tranche matures. |
| You have more time to choose the appropriate type of mortgage. | The terms are often poor if you extend earlier tranches. |
| You can react flexibly to advance inheritances, gifts or a maturing life insurance policy. | Your costs vary with the step-by-step renewal of your mortgage. |
This article was first published on 19.07.2018
