In the past, variable-rate mortgages were very popular with homebuyers. This has now changed with the long period of low interest rates. Nowadays the alternative types of mortgage such as fixed-rate or Libor mortgages offer more attractive conditions than variable mortgages. Variable mortgages are characterised by flexible interest rates and flexible terms. Currently, variable mortgages are subject to an interest rate of between 2.25 and 2.75%.
What is a variable-rate mortgage?
A variable-rate mortgage is a mortgage with a variable interest rate with no fixed term. The cancellation notice period is normally three to six months. The variable interest rate is set by the bank at its own discretion. The general interest rate level and the offers of other banks serve as a guide. If the market is very volatile, the Bank may change the interest rate two or three times a year. However, it may also happen that nothing happens at all, especially when interest rates are low or the market is quiet. The biggest risk of the variable-rate mortgage is the possible change in interest rates. Customers must carefully consider this risk when taking out a mortgage. In this way they can benefit from falling interest rates, but if interest rates rise, the mortgage can also become expensive.
Advantages of variable rate mortgages
- Flexibility for any repayments
- Changing to other financing models at a later date possible
- Interest rates are adjusted
- Mortgage also possible for small amounts
- Short period of notice when changing bank or mortgage
Disadvantages of a variable rate mortgage
- Risk of change in interest rates
- Comparatively expensive, especially when interest rates are low
- Arbitrary interest rate adjustment by the bank possible
In Switzerland experts regard the variable mortgage as more or less obsolete. It is more expensive than other mortgage models and is usually only used to bridge a financing gap in the short term but also for small mortgages of less than CHF 100,000.