Mortages: Bank or Insurance Company?

Most people who get a mortgage in Switzerland settle for fixed rate mortgages or LIBOR-based mortgages. A smaller number of mortgage applicants opt for a variable rate mortgage. But the kind of mortgage you get isn’t the only thing to consider. Choosing the right mortgage provider can make or break your home-buying experience, because charges and customer service at various providers can be as different as night and day.

While mortgages have traditionally been the domain of banks and the finance industry, a growing number of insurance companies have made the shift towards tapping into the lucrative mortgage market. By providing mortgages to home buyers, insurance companies can invest the capital brought in from premiums in a way that brings regular and calculable dividends over the long-term.

In the current rates environment, many insurance companies prefer making sustainable profits off mortgages over risking capital on the the stock market or burying it in low-yield bonds. But offering mortgages is a two-edged sword for insurance providers, in that it also opens up a whole new market of prospective insurance customers.

It’s hardly a surprise then, that major insurers like the Zurich Insurance Group, Generali, Swiss Life, Axa, Allianz Suisse and Helvetia now offer mortgages. Another example is the Baloise Bank SoBa, which is part of the insurance company Baloise.

Life insurance companies are by far the most active mortgage providers in the insurance industry. Property insurers, on the other hand, are more vulnerable to unpredictable financial calamities, which makes them a poorer fit for long-term capital investments like mortgages.

For most Swiss residents looking for personal financing, the bank is still the first port of call. But the increasingly attractive mortgages offered by insurance companies can no longer be ignored. A quick look at the insurance market share in Switzerland confirms this. Out of the nearly 920 billion francs in mortgage loans taken out in 2014, 870 billion francs worth of mortgages were provided by banks, while insurance companies took a significant 32 billion francs share. The remaining 15 billion francs worth of mortgage loans were provided by pension funds. Axa Winterthur led the insurance pack in mortgage market share, followed by Swiss Life and Baloise.

That begs the question: Which would be the best pick for your mortgage needs - a bank or an insurance company?

Here we list the most important differences between mortgages from banks and those offered by insurance companies:

• In Switzerland, banks usually offer the most affordable rates for mortgages of 10 years or less. But insurance companies often beat bank mortgage rates in the long-term mortgage playing field. If you need a mortgage with a tenure of more than 10 years, a mortgage provided by an insurance companies may very likely offer better value. It’s always a good idea to compare all mortgage rates using a neutral comparison tool that includes both banks and insurance companies.
   
• Online mortgages: With the exception of online offers by Swiss Life, all web-based mortgages in Switzerland are powered by banks. Online mortgages don’t offer much in the way of consultation, but in exchange they regularly offer the lowest available rates (check out rates using the neutral mortgage comparison tool from moneyland.ch to see what we mean). The catch is that online mortgages are typically limited to mortgage tenures of 10 years or less.
   
• Unlike banks, some insurance companies offer forward mortgages without a surcharge on mortgage rates.
   
• Insurance companies are normally more conservative in their mortgage offers than their banking counterparts. This is most noticeable when you look at the types of mortgages they offer, as well as deposit requirements and loan-to-value-ratio specifications.
   
• Evaluations have shown that, as a rule, insurance companies value your property using more conservative estimates than those used by banks.
   
• The range of mortgage types offered by insurance companies is mostly limited to fixed rate mortgages and variable rate mortgages. Because of their regularly changing rates, LIBOR-pegged mortgages are rarely provided by insurance companies.
   
• Requirements: Insurance companies generally have stricter eligibility requirements than you would find at banks. Most banks in Switzerland will give you a mortgage even if your creditworthiness is not as good as it could be. To be eligible for a mortgage from an insurance company, your mortgage payments cannot exceed 33 percent of your household income.
   
• The loan-to-value-ratio requirements you’ll have to meet in order to be accepted for a mortgage from Swiss insurers ranges from 65 percent, up to a maximum of 80 percent.
   
• Once you’ve submitted a complete mortgage application, most banks will give you an answer either accepting or rejecting your application within 24 hours. Depending on the circumstances, an insurance company might take a fair bit longer than that to get back to you with a definitive answer.
   
• Some banks will only grant you a mortgage if you have a special banking relationship with them, meaning you have enrolled in certain other banking services. Insurance firms, on the other hand, will normally give you a mortgage even if you don’t sign up for additional services. But they do commonly offer you discounted policies (on life insurance, for example) when you apply for a mortgage with them.

More information:
Mortgages in Switzerland