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Old 05.10.2012, 15:47
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Long term fix rate, good idea in present situation?

Hi, We are planning to take e.g. 500K mortgage with 5 years fixed (1.25%) interest but bank advised us to go for long term fix because current rates are low and in future they are more likely to go upwards.


Breaking fixed term,

bank agent said, penalty will be charged only if interest rates are lower than current else only administration charges will be charged which would be around 500 -800chf

also mortgage can be transferred to new buyer of house if we decided to sell, specially if interest rates are higher at the time of sell this would be advantage to new buyer

- Does it make sense to go for long term fixed rate 10years (2%) or 15 years(2.4%) ?


Thanks in advanced for any kind advise :-)
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Old 05.10.2012, 16:07
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Re: Long term fix rate, good idea in present situation?

I'd go for 5 years only, if the intention is to pay off as much in as little time as possible.
The fact that the mortgage can be transferred to a future buyer does not mean that this buyer actually does want to do that.

Last edited by rainer_d; 05.10.2012 at 17:24. Reason: s/the/that/
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Old 05.10.2012, 17:19
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Re: Long term fix rate, good idea in present situation?

Depends on your time horizon - if it's likely that you might sell around the 5 year mark, then no reason to take a longer term mortgage. If, however, you think that there's a good chance you would own the house for a period significantly longer that 5 years, I would agree that you are unlikely to be able to get a long term fixed rate as low as this in the future, and there is a much more significant risk of rates being much higher in 5 years.
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Old 05.10.2012, 18:48
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Re: Long term fix rate, good idea in present situation?

depends also if you need the cash for anything else. i'd be tempted to put what you can pay off in the next 2 years into a LIBOR mortgage with the view to keep it while you can get higher interest rates elsewhere (my LIBOR mortgage is currently less than 1% whereas I earn more on investments and savings accounts).

the rest, i would stick into a long term mortgage with the view of delaying payment as long as possible e.g. 20 year fixed mortgage (if you can get good rates). with rates, this low, i view it as free money.

then again, if you don't need the cash for anything else and happy to repay the lot in, say, 5 years - then take the shorter fix or stick it all in LIBOR.
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Old 05.10.2012, 22:34
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Re: Long term fix rate, good idea in present situation?

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- Does it make sense to go for long term fixed rate 10years (2%) or 15 years(2.4%) ?
I would ignore to a certain extent your time horizon (how long you think you will own and live in the property). If you think rates are more likely to go up than down (and I for one think so), and if you are able to comfortably afford the slightly higher rate, I would go for the 10 or 15 years.

When rates move up, you have an investment producing a return ( = then prevailing higher rate less your fixed rate). There isn't much room for rates to fall, so you have a downside protection. If you do up and leave after 5 years, you can cash out your investment by asking for a higher selling price - any buyer would be stupid to pass up the opportunity to take over your mortgage and borrow at 2.4% when markets rates are 4% or 5%...
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Old 06.10.2012, 11:38
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Re: Long term fix rate, good idea in present situation?

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I would ignore to a certain extent your time horizon (how long you think you will own and live in the property). If you think rates are more likely to go up than down (and I for one think so), and if you are able to comfortably afford the slightly higher rate, I would go for the 10 or 15 years.

When rates move up, you have an investment producing a return ( = then prevailing higher rate less your fixed rate). There isn't much room for rates to fall, so you have a downside protection. If you do up and leave after 5 years, you can cash out your investment by asking for a higher selling price - any buyer would be stupid to pass up the opportunity to take over your mortgage and borrow at 2.4% when markets rates are 4% or 5%...
A higher selling price, maybe comparatively.. Prices are so high right now because mortgage rates are low. As soon as rates will go up, financing will become more expensive which will bring prices down.
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