Staggering Mortgage Terms
Is It a Good Idea to Have Multiple Terms?
Many homeowners ask themselves the same question: What happens if my expires just when interest rates are high? For this reason, banks often recommend splitting a mortgage across multiple . This is referred to as a or splitting the Mortgage.
But be careful: From the customer’s perspective, this strategy usually doesn’t make sense.
Mortgage
A Mortgage is a loan for the purchase or construction of real estate in Switzerland, with the property serving as collateral. Mortgages can be arranged directly with a mortgage provider or through mortgage platforms. HYPOTHEKE.ch is the largest online mortgage platform. The most common types of mortgages in Switzerland are as follows: Fixed-rate mortgage,SARON mortgage
The term of the mortgage refers to the period for which a mortgage is taken out under the agreed-upon terms. Depending on the type of mortgage, the term can range from a few months to many years. The choice of term affects, among other things, the interest rate, planning certainty, and the flexibility of the financing.
With a staggered Mortgage, the total Mortgage is divided into several tranches with different Terms. This means the Mortgages do not all mature at the same time, which can reduce the risk of interest rate fluctuations when performing an Extension. Many bank advisors recommend this approach. The problem: When performing an Extension on the first tranche, you as the customer are tied to that financial institution and must, in effect, accept whatever Interest rate they offer. Read more here: Should you stagger your Fixed-rate mortgage or not?
Explanation
What does “Mortgage staggering” mean?
With tiered structuring, the Mortgage is divided into several with different terms.
Example
A mortgage of 900,000 CHF is divided into 3 tranches of 300,000 CHF each, with different terms. The amount itself is not the key factor here; rather, it is the difference in terms.
A Mortgage can be divided into several parts. These parts are referred to as mortgage tranches. Each tranche can have its own term, mortgage loan model, and interest rate. Many homeowners use tranches to spread out interest rate risk. At the same time, however, splitting the mortgage can also limit flexibility and weaken your bargaining position with the Mortgage lender when taking out a Mortgage. Read more about this here: Avoiding Mistakes When Taking Out a Mortgage
This means that not the entire Mortgage matures at the same time. The idea behind the staggered structure is simple. If interest rates are high when a , it affects only a portion of the Mortgage. This creates a certain degree of At first glance, this sounds reasonable.
Mortgage Maturity
Maturity refers to the point in time when a Mortgage or a mortgage tranche ends and must be renewed, refinanced, or repaid. At the latest by the maturity date, it’s worth comparison of different Mortgage providers. Those who plan early can secure better Mortgage rates and negotiate better Mortgage terms.
Interest rate risk diversification refers to spreading a mortgage across different terms or mortgage loan models. The goal is to reduce the risk of having to renew the entire mortgage at an inopportune time. While this strategy can be useful, it often leads to greater dependence on the existing mortgage lender and should therefore be carefully considered. Read more here: Should you stagger your Mortgage or not?
Visualization
Effects & Costs
Caution
Dependence on the existing provider
What many people underestimate: Staggered mortgages make it extremely difficult. When one tranche expires and another continues for several more years, problems arise.
Switching mortgage providers means transferring an existing mortgage to another bank, insurance company, or Pension fund upon maturity or under certain conditions. By comparing different mortgage offers, you can often secure significantly better mortgage interest rates. Mortgage platforms such as HYPOTHEKE.ch help you find the best Mortgage.
In practice, it is precisely this situation that often leads to higher interest rates. And that is exactly why many bank advisors recommend a tiered structure.
Frequently Asked Questions
Answers Regarding Mortgage Tiered Rates
Many people want to avoid having to refinance their entire Mortgage right in the middle of a period of high interest rates. The goal of staggering the payments is to reduce interest rate risk.
That depends on the situation. A tiered structure spreads the across different Terms—which sounds attractive at first. The downside: You lose flexibility, switching providers becomes more complicated, and your negotiating position is often weakened.
In practice, a staggered structure is usually unnecessary. Those who wish to diversify their interest rate risk can achieve the same goal with two tranches whose terms differ by only about 18 months—without having to accept the disadvantages of a rigid staggered structure.
Interest rate risk refers to the risk of rising or fluctuating mortgage interest rates. It can be reduced with Fixed-rate mortgages,forward mortgages, or a tailored mortgage strategy—often at the expense of the lowest possible interest rates.
Dependence on the existing mortgage lender. When mortgage tranches have different terms, switching to another bank is often difficult. Many borrowers are unaware that, if their mortgage is structured in tranches, they are tied to their current mortgage lender and cannot switch.
Many banks will only apply for mortgages if the remaining terms aren't too far apart
A difference of more than 18 months is often considered problematic.
Often, yes. A combination of a fixed-rate mortgage and a SARON mortgage can be more flexible than several long-term fixed-rate mortgages—it combines planning security with the opportunity to benefit from lower market interest rates.
However, you should also remain vigilant with the SARON Mortgage: Once the initial term expires, the interest rate or margin may be adjusted. Forward-looking planning is therefore crucial even with this combination.
If the terms of the tranches differ by more than 18 months, switching providers is often difficult.
Video on the topic
Many people make the mistake of taking out multiple mortgages with different Terms. Bank advisors aren’t always entirely impartial on this issue, either. Watch the video to learn everything you need to know about staggered mortgages
@Mortgage
Florian Schubiger
Founder of Mortgage.ch
Appearances Can Be Deceiving
Split borrower's note as a Solution
It is often argued that provides more flexibility when switching providers. In practice, however, this usually works only to a limited extent. Many new providers require that the remaining tranches be applied for at a later date—and charge higher interest rates if splitting is necessary. The customer bears the costs for this.
This means that the dependency effectively remains in place. For example, anyone who transfers the Mortgage in full to a new provider after three years has already committed to applying the remaining portion—regardless of the terms in effect at that time. In this situation, it is no longer possible to negotiate either the Interest rate or other contractual terms. This is a particularly unfavorable starting point.
Splitting a borrower's note involves dividing an existing borrower's note into several separate borrower's notes. The goal is usually to spread the financing across different mortgage tranches or mortgage lenders. Splitting the borrower's note can increase flexibility, but it does not automatically solve the problem of dependence on the existing Mortgage lender. The specific implications depend on the terms of the Mortgage.
We provide truly impartial advice because we are not tied to any specific provider and do not offer our own mortgages. We will only recommend a stepped-rate Mortgage if it truly makes sense for your situation.
Tina Spichtig
Customer Service Representative
A Sensible Alternative
Combining a Fixed-rate Mortgage and SARON
Those who still want to diversify their interest rate risk are often better off with a combination of a fixed-rate mortgage and a SARON mortgage than with several This way, part of the mortgage remains flexible and can be terminated, while the other part provides planning security.
Nevertheless, forward-looking planning is important: Banks may increase the after the . It is therefore advisable to deliberately keep the SARON portion small—ideally to a level where it could be amortized in an emergency. This significantly reduces dependence and preserves the necessary freedom of action.
Long-term fixed-rate mortgages refer to terms of ten years or more. The 10-year fixed-rate mortgage is one of the most popular mortgage loan models in Switzerland. Longer terms are relatively rare. They are often offered by insurance companies on favorable terms. The major drawback is the high cost of early termination of the mortgage. If general interest rates remain low or fall, you’ll end up paying significantly more with a long-term mortgage.
The margin for SARON mortgages is the fixed surcharge that banks or other Mortgage lenders add to the SARON reference rate. The effective mortgage interest rates consist of the Compounded SARON and this individual margin. The size of the margin depends, among other things, on creditworthiness, Loan-to-value ratio, and the lender, as well as the borrower’s negotiating power. The SARON margin is an important criterion when deciding between a SARON mortgage and a fixed-rate mortgage.
The framework term defines the period during which a mortgage must be held with a specific mortgage lender. Within this term, individual tranches or mortgage loan models may be partially adjusted. However, switching to another provider is often only possible to a limited extent—or not at all—during the framework term. The framework term therefore significantly affects the long-term flexibility of a financing arrangement.
Reality
High interest rates are rare in the long term
Historically, interest rates have often risen quickly—but they also frequently fall again relatively quickly. That’s why the risk of “being completely wrong in the long run” is often overestimated. On the contrary: If you take out one mortgage with a five-year term and another with a ten-year term, you run the risk of having to renew both right in the middle of a period of high interest rates. The can indeed be short. In most cases, it makes more sense to have a term difference of only twelve or, at most, 18 months.
Many people try to time the perfect moment to take out a mortgage. However, the right strategy is far more important: Those who consistently compare options, negotiate effectively, and play multiple providers off against each other will get significantly better terms than someone who simply waits for the ideal interest rate.
The interest rate cycle describes the long-term trend in general interest rates. Typically, phases of rising, falling, and stable interest rates alternate. The interest rate cycle is influenced by factors such as inflation, economic growth, the SNB’s monetary policy, and financial market expectations. Understanding the interest rate cycle allows you to better assess mortgage interest rates and make more informed decisions when choosing terms and Mortgage loan models.
Media Roundup
Relevant articles on the topic in Swiss media
Exception
Sometimes a tiered structure makes sense
There are situations in which a staggered structure can make perfect sense—for example, if a future is planned, or if there are multiple properties where the staggering is spread across different properties or an entire .
In most cases, however, a tiered structure is not recommended
Mortgage Amortization
Amortization refers to the repayment of the mortgage debt. It can be made directly to the mortgage lender or indirectly through pledged assets such as a Pillar 3a account, and it affects interest costs, taxes, and financial flexibility. Find more information here: Direct versus indirect Amortization,optimal Mortgage amount,first and second Mortgages explained,Amortizing a Mortgage upon retirement
The mortgage portfolio refers to the totality of all mortgages issued by a mortgage lender, such as a bank, insurance company, or Pension fund. It encompasses various types of mortgages, terms, interest rates, and real estate financing, and is an important component of a mortgage lender’s investment strategy and risk management. HYPOTHEKE.ch can help mortgage lenders actively manage their mortgage portfolios.
Conclusion
Only restructure a Mortgage with a clear strategy.
The tiered structure of mortgages often sounds more attractive than it is in practice.
The key issue: flexibility and bargaining power are usually lost in the process. If you want to secure favorable terms in the long run, you’re usually better off with a simple, clearly structured Mortgage—one that’s transparent and allows you to switch providers.
Less complexity means more flexibility.
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