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Cost trap mortgage replacement

Would you like to repay your mortgage early? Note the following points to avoid experiencing any negative surprises.

You have partly financed your property through a mortgage, which has a longer term than the time of sale and are now wondering what possibilities you have?

Basically, there are several possibilities, which we would like to show you below:

1. “Takeaway” of the existing mortgage
You are selling your previous property to buy a new property. In this case, it is referred to as a replacement, whereby it is possible to transfer the previous mortgage to the new property. The prerequisite for this is that the financing bank carry out a positive examination of the new property and that the amount of the mortgage is at least. is consistent. In this case, the loan conditions do not change and you can continue to charge the same costs.

2. Transfer of the existing mortgage to the buyer
The buyer of your property is willing to take over the existing mortgage and thus agrees with the remaining term, the agreed interest, the amount of the mortgage as well as with the financial institution. Of course, in this case, the buyer has the option to take out an additional mortgage (if higher debt financing is desired) with the same bank, renegotiating the terms for the second mortgage. A transfer is required for the credit check of the new borrower (buyer) by the financing bank

3. Repayment of the mortgage
They have no plans to buy a replacement and the buyer has no interest in taking over the existing mortgage. In this case, you only have the option of early repayment of the existing mortgage. In this case, you will have to expect additional costs. In the event of an early redemption of a mortgage, the financing bank shall be entitled to the interest it has lost until the date of maturity, any opportunity costs in the reinvestment of the funds and compensation for expenses. To do this, check the terms of your mortgage (loan agreement).
Often the sellers are surprised about the amount of the total amount for early replacement. In particular, the so-called “opportunity costs” play a not insignificant role in the calculation of the repayment amount. The current interest rate environment (negative interest rates) means that in the event of an early dissolution, the financial institution calculates not only the lost loan interest rate, but also the costs of the “reinvestment” incurred over the term.

An example in numbers:

Loan amount: CHF 500,000
Remaining term: 4 years (1’440 days)
Fixed interest rate: 1.5 p.a.
Current interest on the capital market over the term: -0.79 p.a.

Missed margin over term: CHF 30,000 (500’000×1.5×4)
Opportunity costs for reinvestment: CHF 15,800 (500’000×0.79×4)
Compensation for expenses: CHF 1,000
Total cost of early dissolution: CHF 46,800

The above numerical example shows how high an early termination of an existing mortgage can become. Therefore, we recommend that you carefully consider all options in advance of the sale and make any clarifications with your bank.

If you do not plan to procure a replacement for the sale of your property, prior clarifications regarding an existing mortgage are of great advantage when planning the sale.

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