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Things to consider when applying for a new mortgage
Taking out a new mortgage often appears at first glance more complex than it actually is. However, as buying a home is an important financial decision, a hasty decision is not advisable. If you gather enough information and get plenty of advice beforehand, you can save a lot of money and benefit from a mortgage that meets your requirements. Read on to find out what factors need to be taken into consideration when applying for a new mortgage.
Basic requirements for any financing
All financial institutions have minimum requirements for potential mortgage borrowers in the form of a sufficient loan-to-value ratio and affordability. In Switzerland, the loan-to-value ratio may amount to a maximum of 80 percent of the lower value of the purchase price and the value of the property estimated by the financial institution (lowest value principle), which is why at least 20 percent of the required funds must be provided by the mortgage borrower. However, the maximum possible loan is granted only by additional collateral (inheritance benefits or pension capital from pillar 3a).
The calculation of affordability is intended to ensure that the monthly gross income is burdened with a maximum of 33 percent of costs incurred through the mortgage. This includes interest and amortization payments, running costs for maintenance and provisions for major modernization measures.
The right provider
Before you decide on a financing partner, you should obtain comparable offers and make use of independent advice. MoneyPark offers personal and independent advice in more than 25 MoneyPark branches across Switzerland, enabling you to find the best financing solution offered by more than 100 providers for both new mortgages and refinancings.
The following additional costs must be considered when applying for a new mortgage:
- Administration fees
- Fees for property valuation
- Notary fees for the authentication and certification of the contract
- Costs for the registration of the land charge (depending on the amount of the land charge) required to receive the mortgage
Here are some ways to reduce the risks of a new mortgage:
- Lange Zinsbindung eingehen wenn der Zins am Kapitalmarkt niedrig ist (um den attraktiven Zinssatz für möglichst lange Zeit festzuschreiben)
- Bei einem höheren Zinsniveau kann es sich lohnen, auf variable Zinsbindungen zu setzen
- Höhe der Amortisationsraten gemäss den persönlichen finanziellen Möglichkeiten festlegen
Which mortgage model is best for me?
The fixed-rate mortgage
A fixed-rate mortgage offers the greatest planning security since the mortgage interest remains the same for the entire term (typically 2-20 years). When the loan agreement is finalized, the terms are primarily dependent on the current situation of the interest rate market, with the duration of the mortgage and income and asset conditions being important additional factors. The amortization period is determined by the amount of amortization payments and the term of the mortgage. Some banks allow adjustments to the amortization to react to possible changes in the income situation. Fixed-rate mortgages are particularly suitable for customers who prefer predictability and protection against rising interest rates. However, a fixed interest rate mortgage may turn into a disadvantage if your personal financial circumstances change.
The LIBOR mortgage is based on the LIBOR (London Interbank Offered Rate). This is the interest rate which is used for inter-bank lending. Banks then add their own margin to the LIBOR interest rate to arrive at the final interest rate offered to the customer. Depending on the contract terms, a LIBOR mortgage is adjusted in accordance with LIBOR rate fluctuations every 3, 6 or 12 months. This means there is a risk of higher interest rates, but also a chance that rates may fall.
Variable-rate mortgages usually have high interest rates and a non-transparent composition when compared to a LIBOR mortgage. With this mortgage form, there is no fixed term, but notice periods between 3 and 6 months. The variable mortgage is thus characterized above all by high flexibility and is suitable in the event of falling interest rates since it is possible to switch quickly to a different mortgage model. However, the non-transparent interest rate and the risk of rising interest rates are problematic to some borrowers. When the general interest rate level is low, a variable-rate mortgage is often expensive compared to LIBOR or fixed-rate mortgage rates. Nevertheless, it provides an ideal intermediate solution due to its great flexibility.
Current mortgage rates
The displayed interest rates are the best rates currently available. Your personal interest rates may vary depending on LTV, affordability, mortgage amount and the location of the property.