Mortgage term: short or long?
"So check who commits", this is especially true for financing your own home. Because mortgages usually have a defined term. Ranging from flexible, short-term models to fixed-rate mortgages with 15-year terms.
Which term is the most suitable?
Many homeowners opt for fixed-rate mortgages with long maturities. Those over five and ten years are particularly popular. But what fits the majority is not always the best choice in individual cases.
Which term suits you depends on individual factors. First of all, there is the question of what type you are. Place a premium on reliable budgeting with fixed interest costs? Or is flexibility important and would like to bet on low interest rates – with the residual risk that things may turn out differently??
In addition, consider the circumstances of your life. One example: if it appears that a couple will be looking for a new home in a few years because the children are moving out, a long mortgage term could prove to be an unwanted "shackle".
Finally, the personal market assessment plays a role. If you expect interest rates to fall, you tend to do well with a short term. He simply must also be able to sleep well if, contrary to expectations, interest rates rise.
Advantages of mortgages with long maturities
The more pronounced the security orientation, the more likely a fixed-rate mortgage with a long term is recommended. The advantage is obvious: you can fix a certain interest for several years at once. This makes future housing costs calculable over the agreed term and hedges one against interest rate risks.
Conversely, depending on the terms of the contract and the associated early termination fees, it may not be easy to get out and switch to cheaper financing if interest rates drop. Even if your life situation changes, for example due to a divorce, and you have to part with your home, the mortgage remains in place. If the buyer does not take over the mortgage, an early repayment penalty must be paid. However, such situations must be examined individually and solutions found.
Advantages of mortgages with short terms
There are also good reasons for a short term mortgage. Those who choose a short term remain flexible. If a job offer abroad suddenly beckons, you can sell your home in the foreseeable future without incurring a prepayment penalty.
In addition, it is open to mortgage borrowers to react regularly to changes in interest rates. No one is stopping them from switching to a different mortgage or provider. To benefit from this, however, they need to keep themselves A jour about the conditions on the market, which requires a certain interest and expertise.
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Terms according to mortgage model
The mortgage market is dynamic. Nevertheless, two types of mortgages have become widely accepted: Fixed-rate mortgages and money market mortgages.
The most popular are fixed-rate mortgages with a fixed interest rate for the entire term of the loan. Traditionally, these run for a period of up to ten years. However, longer terms can now be found, such as those of 15 years at key4.
Money market mortgages are also a perennial favorite. SARON mortgages in particular are on the rise. Your interest rate is variable: it depends on the interest rate in the money market, which changes daily. These mortgages are based on SARON (Swiss Average Rate Overnight), the reference rate for the Swiss money market. It will replace LIBOR, which will no longer be determined as of 2021.
Also, the contracts for money market mortgages usually have terms of one or more years. However, they can usually be dissolved more favorably than fixed mortgages. In addition, there are SARON mortgages without an "expiration date". They run indefinitely and can be terminated with a certain period of notice. At key4, open-ended SARON mortgages are also offered.
The classic variable mortgage represents a phase-out model. This also scored with variable interest rates and short-term maturities. However, the SARON mortgages are considered more transparent. Because a look at the reference rate is enough – and the cost development is clear.
Conclusion: running times – it's the mix that counts
Putting everything on a mortgage model and a term carries a risk: You shoot yourself for a certain scenario. According to experience, however, life provides surprises. For this reason, it is often advisable to divide the financing into tranches. Depending on your needs, you can combine different models with different terms – and balance the advantages and disadvantages.