Choosing a mortgage to buy a house
Becoming an owner is the dream of many people in Switzerland. Before looking for and finding the ideal property to buy, it is necessary to think about financing. Take stock of your budget and your own funds but also anticipate your future expenses such as furnishing costs, maintenance, repairs, etc. And finding a suitable mortgage loan is not always easy.
Because when you decide to buy a house, you do not always have the necessary equity and you have to seek help from a bank or a lending institution.
For many households, a mortgage loan is necessarily a necessary step because, without a loan, many cannot claim real estate ownership.
In addition, it is difficult to understand the differences between the different types of mortgages and interest rates or even the subtleties of each means of financing. INP Finanz guides you through this labyrinth and gives you the best advice to achieve your project.
In this article, we explain the differences between the three types of mortgages the most common ones to help you choose the one that's right for you.
How does it work ? Banks and lenders can finance you up to 80% of the total value of the property. If you buy a house at a total price of 300 CHF, you must already have 000 CHF in contribution (the famous equity). And you can only qualify for a maximum loan of CHF 60 (not including interest or the 000% safety margin).
Do you have doubts about your equity capital? Thanks to our purchase potential calculator, you will know which property can fit into your budget.
What is a fixed rate mortgage?
If you want to know now how much interest you will have to repay for the loan, then a fixed rate mortgage is for you, where the monthly payment of the loan will remain fixed for its entire term. While this protects you against any sudden increases in interest rates, the bank may charge you a small additional percentage, which means your payment will be higher in the short term.
What is a variable rate mortgage in Switzerland?
With variable rate mortgages, the interest rate changes based on changes in the financial markets. The amount of your interest payable may therefore fluctuate and increase or decrease. Due to the law of large numbers, adjustable rate mortgages are best for the long term, but if you intend to pay off your home purchase loan in less than 10 years, this is a solution you you should carefully consider seeking the assistance of your financial adviser.
What is the Libor mortgage?
If you want to choose a variable rate mortgage, you can apply for a Libor loan with a cap (i.e. a maximum threshold). A Libor mortgage is a variable rate loan that calculates interest based on the London Interbank Offered Rate.
Thanks to the cap, the interest rate is capped at a maximum for a limited period and is then reassessed (generally every three months). Thus, the monthly payment of your mortgage is variable and can decrease as well as increase according to the markets, but it can never exceed the threshold defined by the cap, so that you will always have a viable monthly payment. You can also decide to switch to a fixed rate mortgage to replace it.
Beware though: the UK financial watchdog (the FCA: Financial Conduct Authority), only guarantees the fixing of the Libor until the end of 2021. The Libor rate is therefore destined to disappear. To replace it, banks will offer Libor mortgage extensions but also other stable financing alternatives, such as SARON Swiss Average Rate Overnight.
This new SARON rate is strongly recommended as a reference for interest rates. In particular, Swiss banks have examined the various possibilities to offer attractive financing alternatives for individuals wishing to take out variable-rate mortgages. Like its predecessor, Libor, the purpose of SARON is to reflect the rates at which banks exchange currencies with each other.
What is a mixed mortgage?
Some lenders also allow you to take out mixed mortgage loans, where part of the capital is repaid by a fixed rate loan and another by a variable rate or Libor. You can thus benefit from the advantages of the three solutions and avoid any unpleasant surprises in the future. Compare mortgage rates in Switzerland with the INP Finanz calculator.
How do banks calculate mortgage interest?
Keep in mind that your mortgage should always be viable for you and your family. Banks examine your file and decide according to specific criteria, such as household income. Indeed, your income must cover not only maintenance and repair costs, but also mortgage interest, even in the event that rates increase significantly. The banks take as security a rate of 5% in anticipation of a very strong variation of the market over the years to come. This percentage often limits the total amount of the loan granted to a future owner. Hence the need and the advantage of buying together if you are a couple. This makes it possible to accumulate income and to be able to claim a sufficiently interesting loan.
It is therefore essential to anticipate all major expenses before embarking on a real estate project. Read our article to learn about all the costs to consider when buying real estate.
Our best advice
When you plan to buy real estate with a mortgage loan, first assess your purchasing potential based on your equity and your income. For this delicate step, the INP Finanz experts will guide and support you in finding a tailor-made loan offer that will allow you to carry out your project!
Simple and fast: apply for financing online!
A mortgage loan is an important investment for your future and that of your family. INP Finanz Romandie makes it a point of honor to advise you in complete neutrality to choose the best partner for your mortgage loan.
Our goal : help you carry out the projects that are important to you.
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