Early termination penalty for early repayment of a fixed-rate mortgage on the basis of a negative reinvestment rate

A couple repaid their fixed-rate mortgage early and had to pay an early repayment penalty that was almost twice as high as originally calculated. The bank calculated the early repayment penalty based on a negative reinvestment rate of -0.08%. The Ombudsman questioned this calculation. The bank explained its approach and offered to calculate the early termination penalty using a reinvestment rate of 0%. This led to a reduction of the early termination penalty by around CHF 2,500, which the bank refunded to the clients.

The couple had taken out a fixed-rate mortgage in two tranches. In mid-March 2025, it requested an indicative calculation for the early repayment penalty in the event of early repayment of the mortgage. The bank estimated the expected early termination penalty at around CHF 17,000. When the couple finally repaid the mortgage early in June 2025, the bank charged an early repayment penalty of around CHF 33,023.65 – almost double the original estimate.

The clients could not understand why the early repayment penalty had almost doubled within a few months. She was particularly irritated by the negative reinvestment rate of -0.08% applied by the bank. Since the end of the negative interest phase, the Ombudsman has not seen such a ev. Low negative rate applied to early termination penalties for fixed-rate mortgages. The remaining term of the mortgage at the time of termination was just over 4½ years. In his opinion, with such a remaining term, the reinvestment rate ought to have been at least slightly positive even in mid-June 2025. He therefore contacted the bank and asked it to explain the calculation of the early repayment penalty.

The bank referred to the general provisions of the framework agreement for mortgage loans. These provide that in the event of early termination of a fixed-rate mortgage, the difference between the contractually agreed interest rate and the interest rate that the bank can obtain at its own discretion for an investment on the money and capital markets with a corresponding remaining term will be calculated.

According to the bank’s explanations, it must invest the capital repaid ahead of schedule in a risk-free manner in such cases. In practice, this typically takes place in federal bonds, whereby as a rule there is no such bond whose remaining term exactly matches that of the prematurely terminated fixed-rate mortgage. Therefore, she must look for a bond whose remaining term approximately corresponds to that of the prematurely terminated fixed-rate mortgage.

The bank explained that at the time of termination, a federal bond with an approximately matching remaining term actually yielded a negative return and the corresponding value roughly matched the reinvestment rate used of -0.08%. The bank considered its approach to be fair and explained that it would merely be put in the same position as if the clients had fulfilled the fixed-rate mortgage as agreed until the end of the term.

The significant increase in the early repayment penalty between March and June 2025 resulted from substantially lower capital market interest rates during this period.

The Ombudsman found that the applicable contractual provision was in line with standard market terms. However, the version of the contractual provision applicable to the couple did not contain, in contrast to a later version supplemented by the bank, any explicit reference to possible negative reinvestment rates.

In view of this fact, the bank was prepared to accommodate the client by way of a settlement. The bank offered to reduce the applied reinvestment rate to 0%. This led to a reduction of the early termination penalty by approximately CHF 2,500.

The Ombudsman presented the couple with this settlement proposal, explaining that the contractual provision was standard in the market and that the bank had clearly explained its calculation method. The bank’s gesture was made without acknowledging any legal obligation, without prejudice and on balance of all claims.

The couple accepted the settlement proposal. The bank then immediately reimbursed the couple the agreed settlement amount, thereby resolving the dispute.