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Pay off Swiss Franc mortgage?

Borrowing | Mortgage Helpful? 5

Asked by janemf, submitted 08 December 2011.

Open Quote A little over 3 years ago, along with many others, we took out a 9 year Swiss franc mortgage which we repay in sterling. We have the funds to clear this but are unsure whether to grasp the nettle and do it shortly or whether to hold off in the hope that the exchange rate will revert or improve.

I understand you can't give specific advice but it would be interesting to have your thoughts.
End Quote

Answered by Justin on 15 August 2012

While an appealing idea, in theory, at the time. Swiss Franc mortgages haven't unfortunately worked out that well to date.

The key problem has been the strengthening Swiss Franc. During the credit crunch and subsequent turbulent times, Switzerland has been viewed as something of a safe haven and demand for its currency has soared. Higher demand makes a currency more expensive, which is bad news for foreigners with Swiss Franc mortgages.

To give an example. Suppose you borrowed £100,000 at 3% back in August 2008. The exchange rate was about 1 GBP = 2 CHF. So your mortgage would be 200,000 CHF with annual interest of 6,000 CHF. Move the clock forward and the rate now is about 1 GBP = 1.5 CHF. This means your mortgage is effectively £133,000 and the annual interest £4,000, i.e. both have increased by a third. This is a simplified example ignoring repayments etc, but highlights the perils of currency movements.

Will the Swiss Franc weaken in future? Given Eurozone/global economic woes are here to stay for a while longer yet, I think it's unlikely the Franc will weaken by much, if anything, over the next couple of years. The situation might change when global economies start showing signs of sustained recovery, but that may well be several years away, perhaps longer.

If the mortgage interest rate is so low you can earn more by keeping the cash in a savings account, then maybe don't rush to pay it off - although this would leave you exposed should the Franc further move against you..

Otherwise, provided this cash isn't needed that badly for something else, I'd be inclined to wipe the slate clean and pay off the mortgage.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (1) - To post a comment please register or login .

Comment by EssexGeoff at 5:30pm on 01 Sep 2012:

In August (?) 2011 the Swiss National Bank started a determined effort to cap the value of CHF vs the Euro, pushing it down by maybe 10%. This valiant effort may still be continuing as the rate has stayed about 1.20 (the target) for the last year. If their efforts to thwart the markets are unsuccessful the CHF will bound up yet again, so beware of holding debt in Swiss Francs!