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What is reverse mortgage in Switzerland, and will it benefit me?

Helena Bachmann
Helena Bachmann - [email protected]
What is reverse mortgage in Switzerland, and will it benefit me?
Reverse mortgage may be beneficial to some homeowners, but not to all. Image by cosmix from Pixabay

With Swiss interest rates set to increase further in 2023, many homeowners are looking for cheaper mortgages - here's a look at whether the ‘reverse’ option can benefit you.

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Interest rates in Switzerland — including for mortgages — went up in September when the Swiss National Bank (SNB) raised the key interest rate by 0.75 percentage points, putting it back in positive territory at 0.5 percent for the first time since 2015.

While the SNB’s goal was positive — to fight inflation — for many current and future homeowners, this news was not so good, as it meant higher mortgage rates.

Then, on December 15th, SNB announced a further 0.5-percent increase in its key interest rate — to 1 percent.

If you already have a fixed-rate mortgage, then you are safe from rate increases for the term of your mortgage.

While this is good news for most people (especially as a number of Swiss banks have increased their interest rates on savings), and indifferent  news for people with fixed mortgages, for new home buyers, or those with variable-rate mortgages, things may be more problematic.

“It is not excluded that mortgage interest rates will reach 3 to 4 percent next year," from the current 2.6 to 3.1 percent, according to Donato Scognamiglio, director of real estate platform Iazi.

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So if you fall into the latter two categories, you may be searching for less expensive home financing options, including the reverse mortgage.

First, what exactly is reverse mortgage?

In simple terms, it is the opposite of a regular mortgage: instead of you making monthly payments to the bank, the bank makes monthly payments to you. These payments continue until you die or move out of the house permanently.

If you are not worried about what happens to the house after you die, or whether anyone in your family inherits it, then this may be a good solution — certainly one that will bring you extra income for as long as you live.

There are, however, several conditions that must be fulfilled to be eligible for reverse mortgage, which may vary depending on the lending institution: you must be at least 60 years old, the mortgage on the property is fully or largely repaid, the property must be in good condition, well located, of stable value, and used by the owner rather than being rented out.

But even though a regular payment from a bank may sound enticing and help solve your financial problems, not all is necessarily rosy with reverse mortgage.

For instance, it is still a credit agreement that cannot be cancelled easily. Also, high fees are involved in reverse mortgage (the ones you pay to the bank for this service, not vice-versa), so you have to do the maths carefully to see what your net profit is.

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Also, the reverse mortgage system assumes you will live in your home until you die. But if you leave the property before then — if you move to a retirement facility, for instance — your contract with the bank will end, and the lender will have an option of selling the property to recoup the money it lost.

Perhaps the biggest negative, however, is that if you have heirs, they will not be able to fully inherit what may well have been their family home.

If you are considering reverse mortgage because you can’t pay the current rates, these articles will provide useful information:

What to do in Switzerland if you cannot pay your mortgage

EXPLAINED: Why not paying off your mortgage in Switzerland can save you money
 

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