While looking into the basic requirements for a mortgage in Switzerland, it is important to consider what type of mortgage is best suited to your needs. Mortgages in Switzerland are available for all types of housing and vary depending on premium costs, duration and purpose. Now, environmentally friendly loans have been made available if you would like to make your home greener.
In Switzerland, mortgages are provided by registered and regulated mortgage providers. They are able to provide different variations of a mortgage, each with its own costs and benefits. Mortgages provide most of the cost for purchasing property upfront as well as covering some of the taxes, costs and fees.
The new owner is expected to pay the cost back over time alongside an upfront payment of 20 percent of the cost of the house. The amount of time given to pay the lender back and what the total cost will be to the homeowner is dependent on the policy, duration and rate. When looking to buy a house in Switzerland, it is essential that you choose the right mortgage for your needs.
Mortgage types in Switzerland
The mortgage market is predominantly controlled by Swiss banks, offering competitive rates for flexible or fixed mortgages. Some policies may be cheaper than other options, with the consequence of higher risk or shorter repayment windows.
The following details are to provide a basic look into Swiss mortgages. In order to find the ideal one for your needs, it is advised to consult a mortgage advisor.
The most common form of mortgage in Switzerland is the fixed-rate mortgage. This is where your regular repayments are set at a constant rate for the duration of the policy. This means that the amount you repay remains unchanged throughout the contract, similar to the constant payments from a rental contract when you first rented a house or apartment.
This type of mortgage is beneficial in that it allows for long-term financial planning, in the knowledge that your expenses will remain unchanged. The amount you repay is set to a specific interest rate and is frozen at that amount, regardless of market conditions. These policies last for between 10 and 20 years before being renewed.
A restriction of this type of mortgage is that you do not receive benefits if interest rates were to fall, and the overall price you pay cannot be renegotiated before expiry. Once the policy expires, you are able to renegotiate at a new price or switch to a variable rate mortgage.
Variable-rate mortgages in Switzerland
Variable-rate mortgages are financial packages that change in price in line with official interest rates. This allows the policy to vary in price and for homeowners to benefit if interest rates fall. They also typically have much lower repayment costs in the initial few years of the policy. However, these policies include higher risks as they incur increased costs if interest rates start to rise.
In addition, many lenders offer a temporary rate for the first few years of a policy that may increase dramatically once these are complete. Many policies include no minimum repayment, meaning contracts can last up to 50 years. Be sure to check whether your rate will remain competitive throughout the policy, and it is important to consider the risks before applying.
Interbank offered rate mortgage (LIBOR and SARON)
Interbank rates or average-rate overnight mortgages are variable rate mortgages that only change in cost after a specific period of time. Instead of changing each month like a traditional variable rate mortgage, a LIBOR (London Interbank Offered Rate) or SARON (Swiss Average Rate Overnight) has its costs change every set period of time. This can be three, six or 12 months per change.
This reduces the risk of dramatic increases in interest rates while still benefitting from a more flexible policy. As of the end of 2021, LIBOR rates will be phased out in favour of SARON rates, meaning that interest rates will adhere to the Swiss market instead of a global London-based metric. A SARON mortgage is typically short-term, with banks usually offering them for four to 10 years.
Bridging loans in Switzerland
Bridging loans are designed to cover the cost of buying a new house while your old house is being sold. If you are changing address in Switzerland and have bought a new home before selling your old one, a bridging loan will temporarily cover the cost of the purchase until the old home is sold. These loans are only available if you are using your old house as capital to buy a new home and will only cover around 60 to 80 percent of the house’s value.
Bear in mind that these loans are seen as short-term, so be sure to check the time limit of your policy. If your loan expires before the sale of your old home, you will either have to explain the situation to your lender, renegotiate or take out a standard mortgage.
Combined mortgages are where you pay for your house through multiple streams of income. These loans are when you cover the cost of your mortgage through multiple bank accounts or your pension. Some of the income streams that you may combine are regular income, royalties, payments from a divorce or separation and pension income from all three pillars. These loans are typically well priced and can be an excellent way to pay back your mortgage quickly.
Construction and improvement mortgages
Alongside purchasing property, some mortgages allow you to purchase improvements for your home or build a new home entirely. These loans will allow you to improve your house in a sustainable way, as well as help with the cost of construction.
Environmentally friendly mortgages in Switzerland
Switzerland was one of the first to offer low-cost loans in order to support improvements to your house which preserve or protect the environment. Although these loans do not traditionally help you buy a house, they can be used to install solar panels, geothermal heating, heat-saving insulation, and, in theory, personal wind turbines. Many companies also offer these grants if you would like to build an environmentally friendly home. Green grants can also be a great way to save electricity and water.
Construction and commercial mortgages
There are many different types of loans that you are able to access as a homebuyer, these are:
- Construction loans that transfer into mortgages once the build is complete.
- Commercial mortgages if you would like to start a business.
- Renovation loans for home improvements and heritage renovations.