Early mortgage repayment and mortgage waiver
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To repay your mortgage, you can wait until the due date stipulated in your contract. You can also opt for early mortgage repayment. This will result in what's known as a mortgage waiver.
Generally speaking, this entails exit fees, which you will have to pay to the bank or your notary. So it's important to calculate the total cost of this decision before you take the plunge. The support of a financial professional can make all the difference, to optimize your project.
What is a mortgage?
A mortgage is a loan to finance the purchase of a property. The credit is granted against the pledging of the property, to cover the risks taken by the bank. This is known as a mortgage. In other words, in the event of default, the bank will use the property as collateral to repay the loan. This replaces traditional loan insurance.
In general, the contract signed between the buyer and the lending institution provides for, among other things:
- The sum made available
- The mortgage repayment terms and duration
- The costs incurred by the lifting of the mortgage via early repayment
- The rate at which the credit is granted
It is therefore imperative that you acquaint yourself with the entirety of this document, to master the conditions under which the mortgage is granted to you.
What is a mortgage release?
The term "mortgage release" refers to the moment when there is no longer a mortgage on the property. This means that it is no longer considered by the bank as collateral for a loan. Lifting a mortgage can take place in several cases:
- The amortization of your loan is complete, you have finished repaying the bank on the due date
- You make an early repayment, to lift the mortgage
Good to know
To lift a mortgage, repaying your loan is not the only alternative. You can also choose other guarantees, such as a joint and several guarantee, or pledging a savings contract. Examples include the pledging of 3rd pillar contracts. It is still advisable to enlist the help of an advisor to renegotiate your contract in line with the new guarantees you are likely to provide. Your bank is not obliged to accept the new conditions you propose.
How to sell a mortgaged property
Many individuals choose to ask for their mortgage to be lifted so they can resell their property. However, this is not the only possible alternative, to be able to offer your property on the market.
Repayment in advance
To be able to sell your property, you can get rid of the mortgage, by anticipating repayments. Beware, most contracts provide for the payment of financial penalties, in the event of early repayment.
When you take out your mortgage, you should ask yourself whether you may need early repayment. If you are in this situation, you can turn to organizations that offer flexible, penalty-free mortgages.
Mortgage transfer
If you want to take out a new mortgage, to acquire another property, you can do what's called a mortgage transfer. This means you keep your loan, but transfer its guarantee to another property. Please note that this operation is only possible if you take out your mortgage with the same bank.
Among the advantages of this solution, you won't have to pay mortgage registration fees again. As a reminder, this represents 1.3% of the price of the property. So you can save on the costs involved in your next acquisition.
Transferring the mortgage
You can also transfer the mortgage to the next buyer of your property. To do this, the latter must necessarily go through the same bank as you to take out his mortgage.
This option can become a selling point when it comes to marketing your property. Indeed, when the buyer has limited financing capacity, he can take advantage of the existing mortgage. They can also save on mortgage fees, which you've already paid.
What are the fees for a mortgage waiver?
Notary and land registration fees
If you choose to apply for a mortgage waiver, you will have to pay the notary a fee. These represent a minimum of 1% of the total value of the property, which can add up to quite a sum.
You'll also have to pay land registration fees, just like when you take out a mortgage.
The bank's repayment
The bank's repayment is proportional to the capital you may have already amortized. You'll have to repay the full amount remaining, if you don't bank on mortgage transmission or transfer. Before you can embark on early repayment of your mortgage, you should therefore check that your personal funds are sufficient to cover the entire outstanding capital.
Prepayment penalties
In general, exit penalties are equivalent to the interest rate, multiplied by the sum remaining to be paid over the remaining term. For example, if you borrowed at a rate of 1.9%, and have CHF 200,000 left to pay over 2 years, the calculation to make is: 200,000 x 1.9% X 2 years.
If you choose to close your mortgage, you therefore need to measure the financial impact, to know if you're really winning.
Why does the bank apply penalties?
From the point of view of private individuals, it's sometimes hard to understand why banks apply exit penalties. Indeed, why handicap those who wish to return borrowed money ahead of schedule?
It's all about the financial market. To be able to lend you money, your bank itself borrows money at a lower rate. The difference between the rate at which it borrows money and the rate at which it makes it available to you is actually its margin.
When you make an early repayment, you therefore considerably reduce the margin that was initially provided for in the contract. Financial penalties are therefore used to cover part of this loss. It should be remembered, however, that some lenders choose not to apply late penalties in the event of early redemption.
Tax-deductible exit penalties
When you make an early mortgage redemption and discharge, you can also benefit from certain tax advantages. In general, the costs are deductible from your taxable income, just as mortgage interest used to be.
The deduction of exit penalties from taxes is not a reason to pay off your mortgage early. It may, however, give you some comfort in your decision, if you are currently calculating the financial impact of this operation.
Can I negotiate the exit fees?
In general, it is possible to negotiate the penalties applied if the mortgage is lifted before the end of the loan term. Support from a financial professional can help you find the right arguments, depending on the project you're working on.
If you have any questions about early mortgage repayment or the lifting of your mortgage, don't hesitate to contact us. Our advisers will be able to study your file and guide you in choosing the most advantageous solution. Whatever your plans, there's bound to be a solution to suit you.
Updated on: 31.01.2024Written by Valery ChantepyHead of mortgage department at CompareaTo learn more about our team click here.