Increasing your mortgage: the background

If you want to renovate, remodel or modernize your home, you will need capital. You can pay for these investments either with your savings, with funds from your private retirement planning (3rd pillar) or by increasing your mortgage. As many homeowners have invested their assets in their property, their liquid assets are often insufficient for major investments. Increasing their mortgage is therefore an interesting option for many people. Important note: if you increase the loan-to-value ratio on your home, the ensuing increase in your property’s value as a result of the investment – or the increase in value it has already seen as a result of the new market situation – will also play a role: the higher the value of the home, the higher the potential loan-to-value.

When can a mortgage be increased?

It is generally always possible to increase a mortgage if the lender’s requirements are met. But these can be quite complex, because in addition to the market value of the home, the borrower’s affordability and age also play a role. Once you reach the OASI reference age, you can borrow only up to a maximum of 65 percent of the value of your property. Securing a second mortgage is then possible only in exceptional cases.

For what purposes can a mortgage be increased?

You can increase the mortgage if you make investments in your property – for example, renovations, modernization, remodelling and extensions. It is also possible to increase the mortgage when undertaking energy-related renovations (e.g. replacement of the heating system, insulation of the façade and roof, new windows and installation of a photovoltaic system). You can even benefit from subsidies from the Confederation and your canton for this. 

Can a mortgage be increased for a purpose other than its original purpose?

Yes, for example, if you want to buy another property, a new car, undergo training or repay a loan or personal loan. Stricter requirements apply to this: in such cases, the amount of the mortgage must remain within the limits of the first mortgage (maximum two thirds of the property’s market value) even after the increase. If this limit is exceeded, lenders will accept only investing in the property as a reason for the increase. This always requires quotations, invoices or plans as documentation.

What are the preconditions for increasing the mortgage?

The same preconditions apply to increasing a mortgage as to ordinary applications for finance.

• Affordability must be ensured after the increase. This is guaranteed if your property costs (imputed interest + amortization + running costs) do not exceed one third of your household income.
• The loan-to-value ratio of your home may not exceed 80 percent even after the increase. In the case of a mortgage increase for purposes other than its original purpose, the limit is a maximum of 65 percent.

Can I increase the value of the property through renovations?

Yes, it may be important. Without regular maintenance and occasional renovations, the value of the property could drop. You are required to keep your property in good condition so that its value, i.e. the market value, is maintained. So if prices on the property market do not rise steadily, or if you do not amortize regularly, your financial room for manoeuvre will be reduced. If on the other hand you invest wisely in your home, you can increase the property’s value by renovating and modernizing it. And this also creates new financing potential.

Important information

In general, there are two types of renovation:

• Value-preserving measures: these include roof renovations, replacement of heating or appliances, or façade renovations.
• Value-enhancing measures: these include extending the attic or adding a garage. Replacing an oil or gas heating system with a heat pump may also be considered as increasing the value.

The criteria to be met are stricter for value-preserving measures than for value-enhancing measures.

Can a mortgage be increased after retirement?

In principle, yes. This is possible with low loan-to-value ratios. Or if you can provide other collateral (equity, private retirement planning or assets). But the requirements are very high. Any funding must be reduced to 65 percent by the time of retirement at the latest.

This is why it is best to apply for a mortgage increase before your 50th birthday, and at the latest at the age of 55. This means that the expected pension income is already included in the affordability calculation, and this can make a commitment more difficult.

What are the risks involved in increasing a mortgage?

If you want to increase your mortgage, your property will usually be revalued. This can also have negative consequences for you. If the market value of your home has dropped since the last valuation, the maximum loan-to-value ratio will also fall. You may even have to pay back money. If your current mortgage is above the maximum loan-to-value ratio, an increase will be refused and the lender will ask for an extraordinary amortization instead. 

Would you like to increase your mortgage with PostFinance?

Our experts would be pleased to set aside time for a personal consultation. We look forward to assisting you on your journey as a homeowner. 

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