Hi there,
Here are the answers to your questions:
1. What kinds of mortgages are used in Switzerland?
Mortgage models which are widely offered in Switzerland include: Fixed-rate mortgage (interest rates are fixed over predetermined mortgage terms); Adjustable-rate mortgage or variable mortgage (mortgages do not have a fixed term and interest rates can be changed by the bank on an ongoing basis); LIBOR-based mortgage (interest rates are pegged to the London Interbank Offered Rate). More complex mortgage models like LIBOR swap mortgages are also offered.
2. Please explain more about down payments? Can bank account assets, securities, inheritance advances or pillar 3a retirement assets be included in down payments (I saw these on your website)?
Swiss banking guidelines stipulate a minimum down payment of 10%. However, Swiss lenders generally require a minimum down payment equal to 20% of a property’s collateral value is required to secure a mortgage. Tax privileged retirement savings including occupational pension fund assets (2a) and private retirement savings (3a) can be withdrawn for the purpose of making a down payment on a primary residence. The cash value of permanent life insurance policies can be pledged towards the down payment on a property. Inheritance advances from parents to children are tax-free in most Swiss cantons, and can be used to finance the down payment on a home.
Mortgaging secondary residences such as holiday homes requires a higher down payment (between 30% and 50% - depending on the lender and the creditworthiness of the borrower).
3. What is maximum loan-to-value ratio in Switzerland? Is the LTV different in different cases? Which cases are these?
The maximum loan-to-value ratio permitted by Swiss banking guidelines is 90%. However, Swiss lenders generally only accept mortgages with a loan-to-value ratio of 80% or lower.
When mortgaging secondary residences (holiday homes), lenders generally use loan-to-value ratios of between 50% and 70%.
4. Is there a maximum expense-to-income ratio for mortgages?
Swiss lenders require an expense-to-income ratio of 1 to 3 or lower. Expenses which are accounted for in the calculation include required amortization payments, interest payments and property maintenance costs. An imputed interest rate is used to determine affordability. This imputed interest rate is typically 5% interest per annum.
5. Is there a maximum mortgage amount?
There is no legal maximum mortgage amount in Switzerland. Each bank sets its own limits on mortgage amounts. Affordability (expense-to-income ratio) is the primary factor in determining the size of a mortgage.
6. What portion of a mortgage must be amortized?
In Switzerland, a portion of mortgage principal equal to two-thirds of a mortgaged property’s collateral value does not have to be amortized. That means borrowers can carry mortgage debt equal to two-thirds of their home’s collateral value. The remaining portion of the mortgage must be amortized in full within a predetermined amortization period. Retirement savings (2a and 3a) can be withdrawn and used towards mortgage amortization.
7. If someone buys a house to rent out, how is the mortgage different?
Swiss lenders generally require a down payment of 20% and a loan-to-value ratio of 80% for investment properties – just as they do for primary residences. Retirement assets (2a and 3a) cannot be used to finance investment property purchases. Lenders primarily offer fixed-rate mortgages for investment property financing.
Best regards from Moneyguru
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