When used in relation to a mortgage or secured loan, a loan-to-value ratio compares the collateral value of the pledged property against the size of the loan. This ratio is normally shown as a percentage. The higher your home loan in comparison to the property’s collateral value, the higher the loan-to-value ratio.
Loan-to-value ratios are used by banks to determine your eligibility for a mortgage. As a rule, Swiss lenders do not provide mortgages with a loan-to-value ratio above 80%.
As of 2014, Swiss banking guidelines prohibit the financing of mortgages where the loan-to-value ratio is higher than 90%. That means you will have to be able to cover a minimum of 10% of a home’s collateral value with your down payment.
Once you know the collateral value of a property and the maximum loan-to-value ratio accepted by a lender, you can accurately calculate the maximum home loan you are eligible to borrow from that lender.
In addition to the loan-to-value ratio, you will have to meet other criteria before your mortgage is accepted. Read up on affordability and amortization to find out more about these eligibility requirements.
The mortgage calculator from moneyland.ch makes it easy to find the loan-to-value ratio of the mortgage on your home.
Loan-to-value ratio: Example 1
If your property has a collateral value of 800,000 francs and your home loan covers 640,000 francs, your loan-to-value ratio would be 640,000 francs / 800,000 francs = 80%.
Loan-to-value ratio: Example 2
You know that the collateral value of a property is 800,000 francs. You also know that the bank only accepts mortgages with a loan-to-value ratio of 80% or less.
Using these figures, you can easily estimate your maximum home loan:
Maximum home loan = (collateral value) * (maximum loan-to-value ratio) = 800,000 francs * 80% = 640,000 francs.
More information:
Leading Swiss mortgage calculator
Mortgages in Switzerland compared
First mortgage - simply explained
Amortization - simply explained
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