Mortgage glossary & FAQ

In Switzerland, there are three types of mortgage: fixed-rate mortgages, variable-rate mortgages and SARON mortgages (money-market mortgages). In addition, special construction loans are available for new builds. For all mortgages, the interest rate depends on the amount of the loan and its term, market interest rates and your credit rating (creditworthiness).

There are different mortgage models. Which is the right one for you? Your financial resources play a role, as do your attitude to risk and anticipated developments in interest rates. In Switzerland, there are three types of mortgage: fixed-rate mortgages, variable-rate mortgages and SARON mortgages (money-market mortgages). For all mortgages, the interest rate depends on the amount of the loan and its term, market interest rates and your credit rating (creditworthiness).

The calculated interest and incidental costs plus any repayments, maintenance/alimony payments, personal loans and leasing costs may not exceed 33% of your remaining gross income. In some cases, banks may consider lending more than 33%.

• If you want to know your budget before you start looking for a property
• If you already have a specific property in mind
• If you want to seek a second opinion or offer from a lender other than our usual bank

If your capital is less than 35% of the property’s current market value, the difference is known as a ‘second mortgage’. The second mortgage represents the amount which has to be repaid within 10 to 15 years. Amortisation can be direct or indirect.

You need equity of at least 20%, whereby 10% must be real cash. Examples include savings, a savings balance from the 3rd pillar or advances against inheritance. A pension fund balance, for instance, is not classed as real cash.

Amortisation may be direct or indirect.

• With direct amortisation, the amount of capital is steadily reduced, meaning the amount of interest payable is reduced each year.
• With indirect amortisation, borrowers pay into a pillar 3a savings account or insurance policy during the calendar year. The amount of the mortgage remains the same throughout the term. The balance in the savings account grows and payments made into this can be declared on the borrower’s tax return up to the maximum annual amount.

To check an enquiry about financing, banks need documents relating to the property in question and your current financial situation. Any missing paperwork will delay the process, so please have the following documents to hand:

download Checklist for financing enquiries

You are welcome to contact us if you do not yet have all these documents and we will help you to obtain them. 

Before the potential lender – usually a bank – issues a written agreement in principle, they will conduct a credit check on you and collect information about the property. Above all, they will check:

• Financing requirements
• Information and documents relating to the property (land register entry, particulars, etc.)
• Evidence of available equity
• Information about financial status
• Evidence of income

Without an agreement in principle, there are considerable disadvantages for buyers and sellers alike. This means the risk is greater on both sides.

No. As mentioned above, an agreement in principle is informal and not usually binding. It should not be confused with a loan agreement. The loan agreement alone is legally binding. This contains all the details of the agreement between the borrower and the lender.

There are various scenarios and no ‘one size fits all’ solution. The crucial consideration is the former spouses’ personal situation and the outcome of their divorce agreement or ruling.

It is always advisable to discuss all the scenarios before contacting the lender. Crucial questions include:

• What funds did each spouse contribute and in which form?
• Who meets the affordability criteria for this property?

Legal clarification is needed regarding the following types of contribution and possible repayments:

• Advance withdrawals from the 2nd or 3rd pillar
• Advances against inheritance
• Gifts
• Interest-free loans

To recalculate affordability, alimony and maintenance payments are added to or deducted from each party’s gross earnings. If the property is sold, it is important to ensure that capital gains tax is calculated correctly, especially if one of the parties purchases a new property.

As a rule, provided the mortgage interest and any repayments are paid on time, the mortgage can be retained with joint and several liability in the case of a divorce. This also applies to renewals when a mortgage deal ends. Affordability criteria must always be met whenever the bank or other lender completes an assessment.

It is worth thinking about the type of mortgage ahead of time and keeping an eye on current interest rates and trends. Sometimes, it is also financially attractive to switch to a different provider.

If you remain with the same provider:

• Start looking into a new mortgage 6 months before the deal ends
• Consider any additional charges that are payable if you switch early

If you want to change provider:

• You have the best chances of switching provider if you only have one mortgage or if all the mortgages on the property end at the same time.
• Allow plenty of time because the new lender will need to check all the documents.

A mortgage is a loan which is linked directly with the property.
Depending on the lender’s rules, it may be possible to take out a mortgage for a different purpose or increase the amount borrowed.

As a rule of thumb:
Provided affordability criteria are met, up to 65% of the current market value may be borrowed. A portion of this may be used for a different purpose.

Example:

This amount may be used for any purpose (e.g. to buy a second property or invest).

By contrast, if you increase your borrowing for a specific purpose, these funds may only be used in connection with the property (renovation, buying out a former spouse on divorce, extraordinary payment required by the owners’ association, etc.). The amount of additional borrowing which is approved will depend on the recalculated value of the property following its renovation and the ultimate affordability analysis.