Mortgages in Switzerland

If you are going to buy property in Switzerland, either a house or condo, there are two service providers in Switzerland relevant for you. The lending market in Switzerland is different than in other countries where you can just go to a bank. In Switzerland, there are two providers for loans, namely banks and insurance companies that offer loans through their own and through FINMA (Finanzmarktaufsicht) rules. These mortgage loans are named “Hypotheken”.

Insurance companies are the cheapest lenders in Switzerland
For a long time, the banks had the largest market share. This tendency is nevertheless changing, due to low interest rates. Low interest rates have led to an increased focus on long term loans. The borrower hereby receives an increasing safety, since the level of the interest rate is retained even when the level starts to rise again.

Fixed rate mortgages in Switzerland
Another advantage of a fixed-rate loan is that it is easier to predict the future costs and hence to make a sustainable budget for the whole family.

Cheap mortgages in Switzerland
A long term mortgage in Switzerland has a duration of 10-15 years; at some insurance companies even up to 25 years. According to the average consumer portals, the cheapest providers for this product are insurance companies such as Swiss Life. Loans with shorter terms, for example 1-5 years, are usually cheapest when provided by the banks.

Lower interest margin of a life insurance company
The reason that life insurance companies are cheapest with the long mortgages is due to the way that life insurance companies establish their capital base. This capital is obtained from their pension clients who are saving in pension products throughout many years. These savings will be used among others to lend to the property buyers. The difference between deposits and loans is called the interest margin. The risk concerning interest margins is easier to manage in a life insurance company as they, as opposed to banks, work with guaranteed deposit rates in their deposit rates products. As we all know, the interest rates in the banks are variable and change continuously.

Advising on loans in Switzerland
If you’re planning to buy a new home in Switzerland, or just need to renew an existing mortgage in Switzerland, it is wise to seek advice. It is all about finding the lowest risk and interest rate on your mortgage, however it also an advantage to design a model with minimal tax burden. For example, with regards to the lowest tax it is rarely an advantage to amortise directly on the loan. You are welcome to contact if you want to know more about this.

Buy or lease of property in Switzerland
When winter is upon us, it also marks the beginning of the winter sports season and hence the desire for a holiday accommodation or a chalet in the mountains. For those who have a holiday accommodation in Switzerland, it is easy and uncomplicated to spend a pleasant weekend in an oasis away from the everyday-stress.

The question is, however, for many people, how the dream of a holiday accommodation in Switzerland can become a reality? The challenges are many; especially the financial challenge, the tax consequences and mortgaging of the holiday property which is different than the primary residence. The basic rules are:

  1. The purchase of a holiday house in Switzerland requires more equity; put in another way, more down payment is required than with the purchase of a main residence in Switzerland. Usually mortgaging is offered as up to 60% of the property value. The last 40% is the down payment.
  2. When buying a holiday house, one cannot pull money out of the mandatory pension fund or the tax optimal pension savings (pillar 3a). These options only exist when purchasing a primary residence.
  3. The tax on the rental value of the property, the so-called “Eigenmietwert”, needs to be paid in the canton of the location of the holiday house, which may be a different canton from the one that the owner lives in. These matters are regulated by the cantonal double taxation agreements called “Interkantonale Steuerausscheidung”.

Whether a holiday house is financially feasible or not is difficult to say. A general rule is that the total costs of the main residence and holiday home together should not exceed one third of the household’s gross income.

By calculating the yield, the purchase of a holiday home rarely pays off. The possible revenues hardly cover the ongoing costs of one’s equity and debt financing, taxes and various fees. Investing in a holiday home is thus mostly from an emotionally perspective.

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