Buying your own home usually goes hand in hand with taking out a mortgage. Find out everything you need to know about external financing here.
Many people understand the term “mortgage” to mean “a loan for real estate”. But that's not entirely correct. Technically speaking, a mortgage is the right that a “lender” has to your property because of the loan they are giving you. And so, what is commonly known as a “mortgage” is actually called a “mortgage loan”. But that’s not the term we will be using here because at PostFinance, we simply use the more common term.
Variable-rate, LIBOR, online or fixed-rate – there are very different types of mortgages available. We'll explain the most important differences here. You can also find further information about mortgage solutions on our mortgage page.
One of the most popular choices for a first-time mortgage is the fixed-rate mortgage. This is a way of hedging against rising interest rates as interest remains unchanged during the mortgage term chosen. This means interest is generally slightly higher. It may also be worthwhile taking a look at online mortgages to find favourable terms. You can choose the duration of fixed-rate mortgages yourself. In times of low interest rates, there is strong demand for long terms. PostFinance offers fixed-rate mortgages with terms of up to 15 years. Thanks to the fixed rate of interest, you can budget your housing costs precisely, and you have an exact idea of your financial obligations for the years to come.
Make sure you check the terms and conditions in case you decide to end the deal prematurely, especially if the mortgage term is long.
Do you want to know how a forward mortgage works? Go to the article “Forward mortgage: protect yourself against rising interest rates”.
Variable-rate mortgages generally involve an unlimited mortgage term and can be cancelled very quickly (usually within the space of six months). The benefit of this mortgage is that it can be terminated prematurely allowing you to switch to other types of borrowing. The bank adjusts the interest rate to the latest market conditions and you can benefit from a falling interest rate environment as a result. However, you do have less planning security and the really low interest rates seen over recent years could give way to increasing interest rates in the next few years.
A LIBOR mortgage offers a variable and usually more favourable interest rate as it has a fixed but shorter mortgage term than a fixed-rate mortgage. These mortgages are based on a so-called reference interest rate, in other words the conditions under which banks grant interest to each other. Until the end of 2021 this rate will remain the “LIBOR”, based on the interbank interest rates of the London Stock Exchange. After that, it will switch to the “SARON”, the interest rate at which Swiss banks lend money to each other. You can benefit from current money market interest rates that are transparent and easy to understand (though rates do change every three months). So this product is a good option for customers who assume interest rates will not increase over the next one to three years.
Splitting up or combining these two types of mortgage can also be well worthwhile. This process involves splitting a product into two or more tranches (from the French meaning “slice”) with different mortgage terms. The benefit of doing this is that you will not have to roll over the whole mortgage at the same time, so you can respond more flexibly to interest and to your current circumstances. This can, however, come with certain disadvantages, for example if a person decides to switch to a cheaper provider or if they decide they would like to synchronize the terms of their current mortgage.
Start keeping track of affordability and your loan (i.e. for the sum you are not covering with equity) at an early stage for your property. The mortgage calculator will help you find favourable conditions.
Equity means the total amount of equity available for the purchase of a property, and 20% of funding must be covered by equity. But this can come from various sources. However, 10% of the property’s value/purchase price must be covered by genuine equity. This includes for example:
If you are going to live in your own home, you can yield a further 10% of the purchase amount through advance withdrawal or pledging from your pension fund. This does not apply to the purchase of holiday apartments or properties acquired for rental purposes only. It is a good idea for people close to retirement age and families with minors in particular to carefully consider the potential risks of a purchase.
There are additional costs besides equity: for one thing, there is the interest that needs to be paid on the mortgage to the bank or lender. Then the mortgage itself must be paid off, which is known as amortization. Lastly, home upkeep will also be quite a hefty expense. All of these costs must be “affordable” with your available income.
As such, affordability refers to the ratio between expected income and costs incurred, and for them to be “affordable”, they should not constitute more than a third of your (joint) gross annual income.
It makes sense to assume a higher interest rate than the rather low mortgage interest rates we are currently seeing, especially when it comes to variable money market mortgages with interest rate fluctuations. This is why, when calculating interest, banks use what’s known as an imputed interest rate as a basis, which is currently around 5%.
The idea of a mortgage is to make things easier for you in your own home, whether it’s a house or an apartment, and not to place an extra burden on you in your everyday life. That's why it’s important to do plenty of research into this type of loan and to set aside enough equity to cover it. It is not always worth investing in home ownership. Maybe renting would be cheaper for you? Switzerland is still a country of renters compared with the rest of the world seeing as its rate of home ownership is only about 40%. This is why it is a good idea to do plenty of research and to seek advice. You can find more information on this in our article “Renting or buying: which is the best option?”.
Of course, having your own house is not just about money. In addition to the financial side, having your own property is also a major step in life. If you decide home ownership is the way to go, you are also choosing a certain way of life. So make sure to take your time when making this decision and choose the solution that best suits your lifestyle.
