The second mortgage on owner-occupied property is the part of your financing that you must amortize by law. The amount depends on the amount of equity you invest. If you pay for more than a third of your property out of your own pocket, there is no need for a second mortgage in most cases. We have summarized the essentials for you here.
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Created on 29.11.2023
Second mortgage: calculation, example, advantages and disadvantages
If you buy a property, you can finance up to 80 percent of the purchase price with a mortgage. The share of the financing in the property value is called the loan-to-value ratio. For a loan-to-value ratio of over 65 percent, an amortization obligation comes into effect. This means that, within 15 years or by your retirement at the latest, you have to pay back as much of your mortgage as required to ensure that the financing does not exceed two thirds of your property’s market value. This part is known as the second mortgage. Consequently, the remaining part of your mortgage the first mortgage.
The difference between the first and second mortgage
For both mortgages, you can choose between a fixed-rate mortgage and a Saron mortgage. The difference between the two lies in the amortization. You do not have to amortize a first mortgage if the amount in this mortgage is affordable based on your initial financial situation. The first mortgage amounts to a maximum of two thirds (approximately 67 percent) of the purchase price of your property. You can renew a first mortgage repeatedly if it expires. If you are unable to fully finance the remaining third of your purchase with equity, this is where the second mortgage comes in. As you have to contribute at least 20 percent of the equity in any case, this amounts to a maximum of approximately 13 percent of the purchase price.
Financing your own home
A sample calculation
| Distribution | Value |
|---|---|
| Distribution Purchase price of property |
Value CHF 1,000,000 |
| Distribution Equity invested (20%) |
Value CHF 200,000 |
| Distribution Mortgage required (80%) |
Value CHF 800,000 |
Of which:
| Distribution | Value |
|---|---|
| Distribution 1st mortgage (67% of purchase price) |
Value CHF 670,000 |
| Distribution 2nd mortgage (13% of purchase price) |
Value CHF 130,000 |
| Distribution Amortization of 2nd mortgage (across 15 years or until retirement) |
Value CHF 8,667 a year |
A second mortgage is not essential
If you have enough equity, you do not need a second mortgage. This means that you must pay for at least a third of the property out of your own pocket, which will not only save you amortization costs, but interest costs, too. If the loan-to-value ratio is low, this can also have a positive effect on interest rate conditions.
Advantages of a second mortgage
Firstly, a second mortgage will allow you to purchase a property if you are able or willing to invest the minimum equity required. This requires sufficient affordability. Secondly, you can save on taxes with a second mortgage. This is because the higher interest costs can be deducted from your taxable income. At the same time, you can amortize the second mortgage indirectly, and in so doing, save on taxes with a pillar 3a account.
Disadvantages of a second mortgage
A second mortgage is what’s known as a secondary or subordinated mortgage. This means that, in the event of a forced sale of the house or apartment, the first mortgage is repaid as priority from the proceeds of the sale. The money may not be enough to repay the second mortgage under some circumstances. For this reason, second mortgages entail a greater risk of loss for the lender.
Do you have any questions about the second mortgage?
Ask PostFinance for advice on the subject of mortgages. Our financing experts will be happy to help you. You can arrange your mortgage consultation at your preferred branch with ease using our contact form.
Questions and answers
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There is no need for a second mortgage if you finance at least a third of a property’s purchase price with equity.
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You have to pay it off after 15 years or by statutory retirement age at the latest. You can arrange a consultation to discuss the amortization type (direct or indirect) in more detail.
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The second mortgage can be amortized directly or indirectly. “Directly” means making regular payments towards the mortgage, which decreases the mortgage amount. “Indirectly” means paying into a retirement solution under pillar 3a, which is used only when this pillar is withdrawn to pay off the mortgage debt. In other words, the mortgage remains just as high until it is paid off.
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The first mortgage, i.e. the loan amount of no more than two thirds of the market value (also known as fair value), does not need to be amortized if the affordability criteria are met. You can renew this financing share once the mortgage term has expired or repay it voluntarily.
