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Mortgages and Financing

Your questions about mortgages

What mortgage is right for me?

Financing a home is like a glove. It should fit. The mortgage products you find on the market today provide highly individualized solutions - as long as you know what your needs and options are, as well as the features of the various products on offer.

Needs and options: two questions to help you find the right mortgage

You need to ask yourself two questions to gain an initial impression as to what type of “mortgage borrower” you are. How much risk you’re willing to accept and what your financial circumstances look like.

Can you accept that the cost of your home is subject to certain fluctuations or do you want to avoid any surprises?
Do you have adequate financial flexibility to handle sudden rises in interest rates? Or do your personal circumstances require you to be able to budget very exactly?

The answers to these questions can help you tailor the offerings to your individual needs. By evaluating the respective features of the various products, you can find your best solution. When considering the different mortgage products, it is important to look at the following three points:

How do the mortgage products differ?

The various types of mortgages differ first of all in price - the interest rate. However, the interest rate should not be the only consideration, because over the long term the cheapest solution is not always the best. There are other differences that you should consider when deciding on a mortgage or a combination of mortgage products.

  • 1. Interest rate adjustments

    Interest rates in the financial markets are subject to constant fluctuation. As a result, your monthly payments vary. You need to ask yourself how long-term you want or need to plan for the costs of the real estate, depending on your financial circumstances.

    With adjustable rate mortgages the interest rate can change any time. If rates drop, you benefit from lower costs, but if rates go up your expenses increase. You need to have a degree of financial flexibility to handle additional costs.

    A LIBOR mortgage is based on the Libor interbank offered interest rate. The interest rates are adjusted every three months or every six months. With these products, your monthly payment can increase or decrease. But you profit from interest rates that can be significantly lower than long-term interest rates.

    With fixed-rate mortgages you avoid this risk. The interest rate is fixed for a term from 2 to 10 years, and you know exactly what your costs will be. This type of mortgage provides security and planning ability, but you would not benefit if interest rates go down.

  • 2. Terms

    Mortgage offerings differ with respect to their terms. Adjustable rate mortgages do not have a defined term, while fixed-rate mortgages usually run for 2 or up to 10 years; a Libor-indexed mortgage often has a three-year term.

    It can be advantageous to finance your home with multiple mortgages that have different terms. In this way, you can avoid having to renegotiate the entire loan when the term expires. When interest rates are rising, this can help you avoid incurring the costs for the entire loan all at once.

  • 3. Amortization

    Depending on the product, you can amortize a mortgage directly or indirectly. That affects your tax liability. «Direct amortization» means that you repay the mortgage bit by bit, so that the interest burden decreases. This also means that your mortgage deduction is lower in your tax return, so that you may pay less in interest but more in taxes.

    With indirect amortization you don’t pay the mortgage off, but instead transfer the respective amount to a Pillar 3a account. The mortgage debt does not decrease with this type of amortization, so the tax-deductible costs remain constant. You can also deduct the payments to the Pillar 3a account from your taxable income. If the Pillar 3a account is dissolved, these funds will be used to amortize the mortgage.

Below is an overview of the three mortgage types. The chart helps you identify the right mortgage for you:



Adjustable rate mortgage
LIBOR indexed mortgage
Fixed rate mortgage
Interest rate adjustments
Possible anytime
Optionally every three months or every six months
Fixed interest rate over entire term
Term No defined term
3 years
2 to 10 years
Amortization Direct or indirect over Pillar 3 savings accounts
Indirect over Pillar 3 savings accounts
Direct or indirect over Pillar 3 savings accounts
Cancellation Possible with 3 months notice
Not possible during the term
Not possible during the term
Your needs
You profit from falling interest rates, but must also be able to bear higher interest costs.
You profit from interest rates that in some cases are significantly lower than longer-term interest rates. But you must be flexible enough to handle interest increases.
You know the monthly cost for the coming years exactly and can budget accordingly.