Smart ways to finance your own home

Anyone looking to buy a house or a flat has plenty to look forward to – but they also need a solid financial foundation. Alongside your own capital, mortgages – as loans secured against property – play a key role.

The mortgage value is the key factor

A key factor in the mortgage business is the mortgage value. This is defined by the bank. The mortgage value does not always correspond to the actual purchase price or the investment costs incurred, but may be lower. This more conservative estimate of the market value is intended to ensure that, should market conditions change (e.g. in the event of significantly lower property prices), the outstanding loan does not exceed the value of the property.

How much equity is required?

Mortgages are often divided into two parts: the first mortgage (up to 67% of the mortgage value) and the second mortgage (total financing minus the first mortgage). This distinction is relevant in terms of repayment. As a rule, the second mortgage must be repaid to the mortgage lender within 15 years or by the standard retirement age. With direct amortisation, homeowners pay off their debt in annual instalments. This means that both the mortgage debt and the interest burden decrease regularly. For tax reasons, however, indirect amortisation is more attractive: mortgage holders pay their annual amortisation into a Pillar 3a account, which serves as security and a pledge for the bank.

Direct or indirect amortisation

As well as being more cost-effective than renting, home ownership offers further advantages: owners do not run the risk of having their tenancy agreement terminated – for whatever reason. This is part of the freedom and security associated with property ownership. This freedom is also evident when it comes to designing and carrying out any alterations to the property, both inside and out, such as the garden or terrace. Smaller flats or older houses in particular often offer attractive opportunities to become a homeowner and thus leave your time as a tenant firmly behind you. “Home ownership offers many new freedoms; now is the ideal time to take the plunge,” emphasises property expert Thomas Graf.

Affordability: Are the total running costs covered?

Alongside the loan-to-value ratio, affordability is the second key factor in the mortgage market. The bank uses this to assess whether the total running costs are sustainable for the buyer in the long term:

• For a home of one’s own, the total housing costs (mortgage interest, capital repayment, maintenance and ancillary costs) must not exceed around one-third of gross household income.
• This calculation does not use the current low interest rates, but rather a notional interest rate of usually around 4.5% to 5%. These historical averages provide a safety buffer designed to ensure affordability in the long term.

The affordability calculation for investment properties differs from that for owner-occupied homes. Instead of the mortgage holder’s gross income, the net rental income from the property is taken into account.

Three types of mortgage

Lenders such as banks, insurance companies and pension funds offer a wide variety of mortgage models. There is no such thing as a ‘right’ or ‘wrong’ mortgage product. Rather, it is the buyer’s individual situation that matters; in particular, it depends on how they can manage the risk of interest rate fluctuations.

Mortgage models can be divided into three categories:

• Fixed-rate mortgage: With a fixed-rate mortgage, the borrower can secure financing for their property for the short, medium or long term at a fixed agreed interest rate. They pay the same amount throughout the entire term.
• Money market mortgage (SARON mortgage): The money market mortgage consists of a fixed bank margin plus the current money market rate (SARON). This mortgage is suitable for borrowers who wish to benefit from falling interest rates whilst being able to cope with rising rates. You can find the current interest rates and exchange rates here.
• Variable-rate mortgage: A variable-rate mortgage is usually more expensive than a fixed-rate or money market mortgage. It is therefore mainly used as a short-term stopgap.

Comprehensive property and financial expertise

The experienced property team at thomasgraf ag will be happy to provide you with personalised and comprehensive advice on home ownership – whether a flat or a detached house – or on investment properties. This established property service provider also offers an exciting selection of attractive properties for sale in both categories. thomasgraf ag is a certified member of the Swiss Chamber of Estate Agents (SMK) and will also support you in the sale of a property – providing a personalised service that meets the highest quality standards. Thanks to thomasgraf ag’s close cooperation with the asset manager and family office service provider TRIONINVEST, as well as the financial services provider hypolino ag, we offer you combined property-specific and financial expertise, many years of industry experience and a strong network.