07.09.2023
The dream of owning a house or apartment always involves money. To finance a home of your own, you will need a mortgage. To find out what to bear in mind when it comes to mortgages, take a look at our tips.
Just 37.4% of households in Switzerland live in owner-occupied property. The rate of home ownership is the lowest in Europe (in German). However, this may change in the future: a number of measures have resulted in the rate of home ownership in Switzerland rising since 1970. This positive trend is not least due to condominium ownership being introduced at that time (The link will open in a new window home ownership (in German)).
To finance their home, the vast majority of people will take out a mortgage. By doing so, they pay just a portion of the total purchase price with their own equity. At least 20% of the purchase price, however, must be covered by equity – in other words paid with your own money. The rest is usually covered by your mortgage. Given that this is paid off with interest to the lender over the course of several years, it is important to be familiar with the right financing models and conditions. By doing so, you will benefit from lower interest rates.
As a general rule, the more equity that is available to finance a home and the more funds you have at your disposal from regular income, the lower the mortgage. This is where terms such as equity, affordability and of course mortgage models such as fixed-rate mortgages, money market mortgages (e.g. the SARON mortgage, which replaced the LIBOR mortgage) or variable-rate mortgages with all their various interest conditions play a major role.
A mortgage (from the Old French, literally “dead pledge”) is in fact not simply a loan, but a charge on property. In order to receive payments in the form of a loan, the mortgage holder transfers the rights of use to a property over to, say, a bank. If the mortgage holder can no longer afford to pay interest at the agreed rate on the mortgage, this is known as a payment default. In such an instance, the bank can “use” (i.e. sell) the property. The mortgage is then used to secure the loan. To put in simply, a mortgage is a bank loan that is secured against property.
If you are looking to purchase a house or an apartment, there are a number of banks and lenders in Switzerland that offer vastly different mortgage conditions and interest rates. In this veritable playground, it is crucial you read the small print. After all, a favourable interest rate is not always the best interest rate. Compare what the banks have to offer very carefully and seek good advice.
Already have an idea of the sort of home you would like? These five steps will help you reach your goal:
This will give you an initial idea of what you can afford with your own equity and income. It will also tell you how high the interest will be compared with your current rent. Remember, though, that you will be responsible for your property’s maintenance yourself, which you will need to factor in financially. As a general rule, we would suggest 1% of the purchase price. So, if you have found a home that is just what you are looking for and can afford it, it is time to start seriously thinking about a mortgage.
There are many models and options available to you that can help to make owning your own home a reality. Alway keep the following principles and tips in mind when it comes to mortgages:
Never underestimate the cost and time involved in handling and obtaining all the documentation you require. In other words, be prepared for administrative work. Allow enough time for paperwork.
Be sure to compare several providers before you take out a loan on a property, and make sure you avoid making rash financial decisions based on a really appealing deal on a house/apartment. The only way to ensure you have enough room for manoeuvre is by comparing offers.
A cheap mortgage is not always the best one: rather than just looking at allegedly great interest rates, especially if you’re looking at online mortgages or those offered by non-banks, you should also take the time to check out the exact mortgage terms and any other conditions. Make sure you thoroughly scrutinize mortgages that look good on the surface. The true value of a mortgage is not something that you calculate based on the interest rate alone, but also based on how flexible the conditions are. For instance, is it possible to back out early? What happens when interest rates rise?
A mortgage will be with you for years, so you need to think ahead. As such, you need to know what other major expenses you can expect to pay in future and what you can avoid.
Given how complicated mortgages in particular are, it makes sense to seek good advice. Much of the process is legal in nature, or it will require solid financial planning. This means you will need to be able to assess your own situation, be it your pension fund, income or assets, very effectively. You will definitely need a trusty expert who can provide constructive advice so that your dream of owning your own home does not turn into a nightmare.
You need to be well prepared to make your dream of having your own home a reality. Take your time and don’t rush to take out a mortgage loan. At the same time, don’t be daunted by the process. After all, if you are equipped with the necessary prior knowledge on real estate financing and bear the right principles in mind, you will be fine.
