Dreaming of owning your own home but put off by the apparently complicated financials? Don’t worry: we’ll explain exactly how building loans and mortgages work and why it is important to talk to a financial advisor as early as possible.
In Switzerland, there are various options available for financing a property purchase. The two most popular financing options are as follows:
A building loan is a loan provided specifically for financing development projects. One great advantage of such loans is that they are very flexible. The loan provider will pay all of the building costs directly from the loan, in line with the build’s progress. During the construction phase, you’ll only be paying interest on the amount paid out, and will only start repaying the loan once the building project has been completed.
When your property has been completed, the building loan will be converted into a long-term mortgage – which is also referred to as consolidation. After that, the building loan will need to be paid off through regular repayments plus interest.
Mortgages are a well-established financing option for either purchasing or building a property. A mortgage allows you to repay the money you borrowed over a long period of time and through regular repayments. Most people will take out a first and second mortgage. The first mortgage is used to finance 65% of the property’s value. The second mortgage is used to finance the rest – that means up to a maximum of 80% of the property’s value. Hence, a buyer will need to pay a minimum of 20% of the purchase price as a deposit. Of that 20%, at least 10% has to be made up of personal savings and up to another maximum of 10% can be from an occupational pension (2nd pillar).
Mortgages are repaid gradually in instalments spread over long periods of time. However the second mortgage has to be repaid within 15 years or, at the latest, by the time the mortgage holder retires.
Important: with a mortgage, your future property itself acts as the security for the mortgage loan. Hence, should you ever find yourself unable to pay the interest on your mortgage, your bank will repossess your property.
Your mortgage capital is a very important factor when it comes to buying a home. The higher the percentage of capital you can contribute, the less money you will have to borrow and hence the lower your monthly repayments.
The mortgage interest rate is equally important. You can decide on the amount of interest you are willing to pay every month on the money you borrowed. The interest rates for building loans and mortgages can vary, which is why it is advisable to compare current interest rates to find the best financing option for you.
Securing a building loan or mortgage is the very first step towards making your dream of owning a home a reality. In order to make sure that you will have the funds to do so, it is crucial to start talking to a professional or your preferred lender as early as possible. A competent financial advisor will be able to help you identify the best financing options that match your financial situation and goals.
So, now that you know about the basics of financing a property purchase, the next question will be whether you would prefer to build a new property or do up an existing one. If you are not sure yet, we recommend taking a look at our guide. This guide is full of valuable information and practical tips for deciding which choice might be the best option for you.
With professional help and the right financing option, there is absolutely nothing to stand in the way of you making your dream of owning a home come true. Don’t hesitate to get in touch with your bank or a financial advisor as a first step towards buying your own home.
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