Early termination fees

Any mortgage holder looking to end his/her mortgage contract before the end of the term must consulte the mortgage provider regarding early termination fees.

Whether the early termination is due to the selling of the property, or to refinance with more attractive terms with another mortgage provider, fees will be charged in most cases.

Why do institutions charge fees ?

When providing you with a loan, most mortgage providers will borrow the corresponding amount on the money market. If you were to end your contrat before the term, your provider will still need to respect its commitment to the market and will therefore bill you the costs as well as the remaining due interest.

Calculating early termination fees

Depending on the lender, the calculation can vary.

Below are exemples of the two most common ways :

Scenario : mortgage of CHF 1 mio, for a duration of 10 years, at an interest rate of 2%. The holder wants to end the contract after 5 years. The money market rate is at -0.05%.

1. Interest due for the duration of the contract : CHF 1 mio x 2% x 5 years = CHF 100k

Negative money market interest : CHF 1 mio x 0.05% x 5 years = CHF 2’500.-

Administrative fees : CHF 500.-

TOTAL : CHF 103’000.-

2. Interest due for the duration of the contract : CHF 1 mio x 2% x 5 years = CHF 100k

Administrative fees : CHF 500.-

TOTAL : CHF 100’500.-

The earlier the end of the contract, the higher the fees.

In order to avoid those fees, please refer to the following articles : Avoiding a penalty fee and Alternative models.