According to a study of the Federal Statistical Office, almost 40 % of the population in Switzerland are homeowners. Access to home ownership in Switzerland has grown over the years and more and more people are applying for a mortgage.
What exactly is a mortgage and how does it work? Here you will find all the information you need to take out a mortgage if you are about to buy a new home or if you are thinking of calling it off early because you are trying to sell it.
A mortgage, also known as a loan or mortgage loan, is a loan generally granted by a bank to a customer to help them finance the purchase of their own home. The amount of the mortgage depends on the value of the property, which is determined by the lender. The security for the bank consists of a lien on the property purchased.
Every Swiss citizen, as well as EU citizens holding a B, C and G permit, can apply for a mortgage loan based on their ability to repay.
There are two basic requirements:
The down payment
The buyer must have equity of at least 20 per cent of the total amount of the real estate he is about to acquire.
At least half of this 20% must come from a personal contribution (savings, donations, inheritance advances or a capital withdrawal from the 3rd pillar). The remaining 10% or less can be withdrawn from the pension fund (2nd pillar).
The portion paid by the bank generally never constitutes more than 80% of the value of the property: 65% of this is financed with a 1st mortgage and the remaining 15% with a 2nd mortgage, which must be amortized in 15 years or by retirement.
Sustainability is the ratio between the cost of the real estate object and the income of the mortgage applicant. This ratio must not exceed 33%. It serves to protect the borrower from over-indebtedness on the one hand and the banks from non-payment on the other.
There are different mortgage models in Switzerland and a distinction is usually made between:
Fixed-rate mortgages - have a fixed interest rate for a fixed period that is independent of market trends. Taking out a fixed mortgage is advantageous when current interest rates are low and interest rates are expected to rise in the near future.
Variable-rate mortgages - they have no fixed term and their interest rate is subject to change. Taking out a variable mortgage is worthwhile for those who want to remain flexible and possibly resell the property within a short time.
Swiss money market mortgages (SARON) - have a fixed term and their interest rate varies daily and is therefore exposed to the risk of strong fluctuations.
Each of these solutions has its own peculiarities, advantages and disadvantages.
The regular repayment of a mortgage is called amortization. With direct amortization you continually reduce the amount of the credit by a fixed amount. With indirect amortization, on the other hand, it is possible to invest the annual amounts in a retirement protection solution, e. g. a life insurance policy. The amount of the debt remains constant throughout the duration of the mortgage. This type of amortization offers tax advantages and the possibility of insurance protection for the duration of the policy.
With some financial institutions you can redeem your mortgage even before maturity. It is important to know that the cancellation procedure depends on the type of mortgage. Particularly with a fixed-rate mortgage there may be penalties to pay for early maturity, which can amount to very large sums.
It is also useful to know that, depending on the canton of residence, the penalty for early termination may be deducted from taxable income. It usually makes sense to terminate the mortgage early if the savings from the new offer are greater than the cost of early termination.
INTEREST RATES ARE RISING? ARE YOU WORRIED ABOUT THE FUTURE AND DON'T KNOW WHETHER YOU WILL BE ABLE TO RENEGOTIATE YOUR MORTGAGE TERMS? ARE YOU EVEN THINKING OF SELLING YOUR HOUSE?