Tips for home financing

What can I actually afford and what funding options are there?

Find the right home financing solution in three steps.

Calculate budget

When calculating your budget, you must take into account both the running costs of the new property and all costs of acquiring it. The latter include the purchase price as well as the transaction costs that apply in the canton in question, such as notary fees and property transaction fees or taxes, costs for ensuring the organization of rights, fees, and property taxes. Because Swiss banks finance 80% of the acquisition costs at most, you must raise at least 20% own capital when buying a home. Some options of gaining this capital are drawing on the pension fund, an advancement of inheritance or an endowment made by your parents, an interest-free loan from relatives or friends, or the sale or pledge of securities, savings or valuables.

A solid financial plan must take into account both the interest rate development in Switzerland and your current and future income situation. Your income situation may change – after the birth of a child, for example, when one parent leaves work for a time. Banks include this in their planning when it comes to calculating whether a property is affordable for the buyer in the long term. The annual burden imposed by the home may not exceed one third of the gross income. Exceptional or irregular income such as bonuses or premiums is not included. Payments for mortgages or loans must be included in the so-called affordability calculation, as must reserves for running costs, maintenance, repairs or renovations. Potential rises in interest rates are also taken into account, since most Swiss banks choose an average value of 5% for mortgage interest rates.

Loan amortization reduces your debt. It is therefore advisable to put aside around 1% of the borrowing requirements per year, and to include this sum in the calculation. With properties in pristine condition, you should put aside another 1% of the property price per year as a reserve; note that the property price includes the costs of both land and building. Around 0.7% of this sum go to the running costs and ongoing maintenance, while 0.3% form a reserve for renovations and restorations. Once you have determined the amount of required external capital, you can begin the search for suitable financing.

Compare mortgage models

In Switzerland, there are basically four different types of mortgages: variable, fixed-rate, Libor and special mortgages. The variable mortgage has no fixed term and an interest rate that is continually adjusted to capital market development. Fixed-rate mortgages run for one to 15 years and retain a fixed interest rate for their entire term – the longer the term, the higher the rate. Libor mortgages are a combination of variable and fixed-rate mortgages, usually offering a fixed term and a variable interest rate that is adjusted to Libor (Libor = London interbank offered rate) either monthly or every three or six months, depending on the specific model. By paying a premium, you can guard against strong interest rate increases with an interest rate ceiling (cap). Special mortgages are – for example – combinations of variable and/or Libor mortgages with fixed-rate mortgages, or mortgages with an interest bonus for first-time buyers or for properties built according to ecological standards (eco mortgages).

Which type of mortgage is ideal depends on the development of the Swiss economy in the coming months and years, since this directly affects interest rate development.

Collect offers

When you’ve found your dream home, make sure to get credit approval from your bank before signing the contract. In Switzerland, the following documents are required to apply for a loan: current tax return, wage statement, record of debt collection, information about the property (including floor plan and possibly sales documents), extract from the land register, sales contract draft and possibly estimate of the cantonal building insurance.

With the credit approval, you will receive a first offer – an offer you should not accept immediately. Collect alternative, competing offers and negotiate with the banks. If you don’t feel comfortable with this, you can hire a financial advisor for the purpose. Last but not least, you should ensure that your family or partner do not lose the home in the event of your death by taking out a fatality risk insurance.