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Created on 10.05.2024

Extending your mortgage: what you should do and what you need to consider

Your mortgage is about to expire and you want to extend it? It’s important to act early and find the best option for you. A forward mortgage may also be an attractive solution. Here you can find out everything you need to consider when renewing your mortgage.

What you need to do when your mortgage expires

The most important thing is to get to grips with your follow-up financing in good time, at least 12 months before your current financing comes to an end. This leaves you enough time to give some thought to the best solution for the future and act accordingly.

1. Extension or amortization?

To begin with, you will need to ask yourself whether you actually want to extend it, or whether you would prefer to (partially) amortize. Because the expiry of a contract also gives you the opportunity to repay the mortgage over and above the mandatory amortization. With most providers, this is not possible while a contract is ongoing without a penalty payment (prepayment penalty). 

2. Terminate your old mortgage

Check to see whether and when you need to terminate your existing contract. Even some fixed-rate mortgages still have to be terminated explicitly, despite having a fixed term.

For Saron mortgages, you also have to adhere to the agreed notice period, which can be up to six months long. Check the small print in your contract.

Tip: If you take out a fixed-rate mortgage with a notice period, terminate it at the end of the term immediately after signing the contract.

3. Obtain offers in good time

Once you are clear about which is the right mortgage model and term for you, get offers – at least six months before the maturity date for your current financing. 

When interest rates are rising, forward mortgages are an attractive option

If you arrange an extension sufficiently early, you can benefit from a forward mortgage. This is a model that allows you to take out your follow-up financing well in advance and secure an attractive interest rate. The solution is naturally interesting only if the current interest rate is low and the forecast is for a rise in interest rates. A forward mortgage from PostFinance allows you to secure the current interest rate up to 18 months before your financing begins. But as is always the case, security has its price – here in the form of the forward surcharge.

How high is the forward surcharge?

The amount of the forward surcharge depends on two factors in particular:

  • Current interest rate environment: the more volatile the interest rates, the higher forward surcharges usually are.
  • Term: as a general rule, the longer the term, the higher the surcharge. The situation is the other way round in the fairly rare case of a so-called “inverted yield curve”, which is when interest rates for long maturities are lower than for short maturities. 

When is a forward mortgage worthwhile?

You will of course know whether forward financing has paid off only with the benefit of hindsight. It will have been a good deal if the effective interest rate including the forward surcharge was lower than the rate at the time the old mortgage matured.

Example: your fixed-rate mortgage of 600,000 francs expires in one year. You extend it by 10 years prior to maturity at an interest rate of 2.1 percent and a forward surcharge of 0.15 percent, giving an effective interest rate of 2.25 percent.

This deal will then have paid off only if the interest rate is higher than 2.25 percent at the time of maturity (scenario B).

Get some advice

If you have any questions on this topic, you can get personalized advice from PostFinance’s mortgage experts – free of charge and with no obligation.

Questions and answers

  • Start making arrangements for your follow-up financing at least one year before your current contract expires. Make your decision as to whether you want to amortize and how much. Choose a mortgage model and term that will best suit your future life situation. Check your existing contract to see if there is a notice period. Finally, when it comes to the new contract: compare, compare, compare! 

  • Yes, in principle you should be able to. Many lenders are willing to take on just one tranche of a staggered mortgage to begin with if they can also take on the others within a relatively short period of time. That means that the closer the maturities are to each other, the better your chances. Things become very difficult if the shortest and longest periods are more than 18 months apart. If this is the case, you are tied to your old lender, for better or worse. This is also the reason why splitting a mortgage into tranches with large differences in terms is not recommended.

  • With a forward mortgage from PostFinance, you can secure the current interest rate up to 18 months before your existing financing expires.

  • It allows you to secure today’s interest rate for future financing. This is attractive when interest rates are currently low and a rise in interest rates is expected.

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