How to increase the existing mortgage to finance a renovation or reconstruction?
By Christoph M. Mueller*
To increase an existing mortgage is becoming increasingly difficult for a borrower, whether for a renovation or a reconstruction. Many banks are becoming increasingly reluctant to provide such loans.
Market observers like MoneyPark note that homeowners face problems if they ask their bank for an increase of the existing mortgage.
Especially for projects below CHF 100,000, it is more and more difficult to get an increase of the existing mortgage.
There are several reasons for this:
- Financial institutions grant a loan without additional capital requirements usually only in the context of value-enhancing projects. But most renovation projects, such as a buying a new kitchen, are only intended to maintain the value of a property.
- Normally, a mortgage can only be concluded with one single bank. Therefore a borrower can only approach his existing mortgage bank when applying for an increase of his existing mortgage. If this bank refuses to increase his mortgage, he is stuck.
- The constantly increasing level of regulations for financial institutions in recent years had negative consequences for the borrower. These regulations were originally intended to strengthen the banks’ capital and to avoid a possible housing bubble. But in reality the result is only that banks apply significantly lower valuations for properties and generally have less appetite for risk.
- The ongoing low interest rate environment means that smaller loan amounts are no longer profitable for the banks. For example, with a credit of CHF 60,000 a bank earns just around CHF 600 interest per annum. Compared to this the manual work load of a bank account manager is out of proportion.
- Retired homeowners with little cash available often don’t get an additional mortgage at all, even if they have existing collateral such as a property.
Since these problems will not disappear in the medium term, this funding gap can only be closed by alternative loan providers with flexible solutions for borrowers.
CG24 CASA of CreditGate24 was created specifically for this purpose and provides a flexible solution for borrowers whose second mortage is no longer funded by the existing bank. All this 100% online.
*Christoph M. Mueller is the founder and CEO of CreditGate24
Source: NZZ, Beobachter, Money Park