Does anyone know how banks calculate the penalty if I were to cancel our fixed-rate mortgage before term (to buy another property)? I asked our mortgage advisor at PF, but he either a) didn't know, or b) was being evasive; he just simply said "a few hundred francs".
i guess he wants you to break it and earn commission no a new mortgage, huh? i guess you should ask your bank.
i recall reading that they charge you the full interest for all future years as if you kept the mortgage to term. which sounded a little harsh. probably also an admin fee on top too.
Well this is what we were told (UBS 2 yr fixed term) but then on another forum I was poopoo'd and told I hadn't understood. But what the banker said was clear - you have entered into a contract to pay this much money. If you want to terminate early, fine but you have to pay the money back as contracted.
About "they charge you the full interest for all future years .... also an admin fee " Probably they do.
In theory they should deduct the value of the interest they would earn by loaning the money to somebody else for the remaining term. Also in theory if interest rates have risen then you could make a profit!
we were told if we left our mortgage early we would have to pay all the remaining interest as a penalty. when deciding how long to fix for this was something we had to strongly take into consideration. However, I agree that if you are staying with your bank they should be able to negotiate something with you.
Our first house had two years of a fixed mortgage left, when we moved into our new one.
When we looked into it, it would have cost us too much in penalties (don't know specifics, though, as my secretary dealt with this), so we rented out (and continue to do so).
However, both mortgages are with different lenders.
We were also led to believe that a fixed mortgage was our best option.
We also understand it to be the sell on cost which is why fixing now at very low rates should make an early exit of a mortgage if required a more likely process as rates will have risen.
Legally you are obliged to pay the interest as contracted, however the bank if you stay with them may just transfer the security and deal to your new purchase.
I once asked the Kantonalbank and my advisor had no issue sending me a mail with the calculations. I waited in the end, and got a deal later. (I was partially on 4% from '07 when rates had dropped by '09 in a five year fix).
I went through this in some detail with PF recently.
It is a little different with them than with some other banks as the provider of capital is not PF, but a German bank whose name I can't remember currently.
Essentially you have 2 options:
1) Pay the full interest due until the end of the term of the mortgage; or
2) Transfer the mortgage onto another house.
Option 2) is clearly preferable, but there are some restrictions, namely:
1) You have to do the sale of your old place and purchase of the new place on the same day (which may be difficult to do depending on the other parties involved in both deals); and
2) The risk factor for the new mortgage should be the same as the risk factor for the old one, so you can't buy a much bigger place with a much bigger mortgage based on the same salary for example...
We did not sell and buy on the same day - but with another bank. With credit suisse they were "happy" (why wouldn't they be?) to hold onto our mortgage money whilst we were without a house and then to gradually release it as against architects' certificates on our new build. We paid the fixed monthly interest charge throughout. In this case it made sense as even though there were about 4 months when the new house wasn't being built so the money was just sitting there, it was cheaper than having borrowed the money for the build through a building mortgage.
I know - that was why I specified that it was another bank
But if they are holding onto your money pending your acquisition, (and especially if this acquisition is already under contract) I cannot from a legal and protection of assets point of view see why they would not permit it.
Sorry for bringing this thread back to life, but I am currently exploring the same question. What I have been told by my back (CS), is that if you sell your property before the end of the mortgage, the buyer can take over the remaining mortgage under the same conditions. If that is the case, I see little risk in taking up a longer-term mortgage (say 10 years) under the current very good conditions (1.1% for a 10yr), as the risk of lower interest-rates 5-10 years from now is low, and hence the buyer should be interested in taking over the mortgage rather than getting a new one.
Buyer would have to buy out his own existing morgage (if any) since he cannot bring it along and thus it is very likely he loses interest in your house, or his buyer should be willing to take over his. So you might lose a big group of potential buyers.
Let's say mortgage 500K with 1.5% and 6years left, that's a fine of 45K.
Or they have the money and don't need a mortgage (It's Switzerland after all)