When you decide to buy a house, you don't always have all the equity you need and you have to seek help from banks and lenders. For many people, a mortgage is a necessary step, but when you start talking about mortgages, interest rates, LIBOR and more, it's hard to figure out which is the best solution. . Here are some details on the three types of Mortgages the most common ones to help you choose the one that's right for you.
The principle: remember that all lenders can only finance you up to 80% of the value of the property, which means that if you buy a house for 300 CHF, you must already have 000 CHF and can only request a loan for a maximum amount of CHF 60.
Fixed rate mortgages
If you want to know now how much interest you will have to repay for the loan, then a fixed rate mortgage is for you, where the monthly payment of the loan will remain fixed for its entire term. While this protects you against any sudden increases in interest rates, the bank may charge you a small additional percentage, which means your payment will be higher in the short term.
Variable rate mortgages
With variable rate mortgages, the interest rate changes with changes in the financial markets, so the mortgage payment can fluctuate and go up or down. Due to the law of large numbers, adjustable rate mortgages are best for the long term, but if you intend to pay off your home purchase loan in less than 10 years, this is a solution you you should carefully consider seeking the assistance of your financial adviser.
Mortgages with CAP
If you want to choose a variable rate mortgage, you can always apply for a Libor loan with a CAP. A Libor mortgage is a variable rate loan which calculates interest based on Libor, the London Interbank Offered Rate, but which, thanks to the CAP, caps the percentage that your interest rate interest can reach. Thus, the monthly payment of your mortgage loan will be variable and can decrease as well as increase according to the markets, but it can never exceed the threshold defined by the CAP, so that you will always have a viable monthly payment. You can also decide to switch to a fixed rate mortgage to replace it.
Your mortgage should always be viable for you and your family. Banks won't let you take out a home loan if your income isn't enough to cover your mortgage payments, but before the bank says "no", figure out what your monthly expenses are and always get a viable loan you can repay. without too many sacrifices.
Some lenders allow you to take out blended mortgages, where part of the principal is repaid by a fixed rate loan and another by a variable rate or Libor. You can thus benefit from the advantages of the three solutions and avoid any unpleasant surprises in the future!