First and second mortgage: The best way to finance your home
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Financing a property does not lend itself to off-the-peg solutions. It’s actually more like buying a tailor-made suit: cut, style, size – everything must be a proper fit for the wearer. That’s also why what is termed a second mortgage is not necessarily a must in the context of mortgage lending, because anyone who can raise the requisite equity then needs only one mortgage. The first mortgage is limited to a maximum of 65 to 70 per cent of the property value. However, if your first mortgage still leaves an equity gap, this can be filled by a second mortgage. There is a further limit which applies to this combination of first and second mortgages: A maximum of 80 per cent of the purchase or construction costs can be financed through a mortgage loan.
Will you need a first and second mortgage contract? Your financing needs will decide
Anyone who takes out a mortgage loan must meet certain requirements. Statutory provisions mean that all mortgage holders must make an equity contribution, and funding at least 20 per cent of the construction or purchase cost is compulsory – so depending on the size and location of the property and its fixtures and fittings, that would require a figure of 150,000 to 200,000 francs. You must meet these costs from your own resources, via the sale of other assets, by investing pillar 2 and 3 assets (up to a maximum of 10% of the market value), or by drawing upon your life insurance or inheritance capital. Only the amount in excess of 20 per cent of the equity can be financed through borrowed capital, and a mortgage contract for this purpose can be arranged using one of these three methods:
The first mortgage will provide finance up to a certain percentage of the market value of your property, so depending on the mortgage provider, your mortgage loan limit will be between 65 and 70 per cent. A second mortgage will cover the missing 10 to 15 percent of the total loan amount you require. Your options are essentially the same as for the first mortgage, though as it is termed a subordinate mortgage, your second mortgage will attract a slightly higher interest rate. On average, the interest rate on your second mortgage would be around 0.5-1 percentage points higher than on your first mortgage.
The second mortgage is subject to amortization
In addition to the slightly higher interest rate, the main difference between the first and second mortgage is how the amortization rules apply. While the first mortgage in principle has no maturity term and therefore does not have to be repaid after a certain number of years, this is not the case with the second mortgage. Here, an amortization obligation does apply – which means this mortgage must be amortized within a set time period, or before the borrower reaches a certain age limit. Though the details may vary slightly according to the provider, amortization of the second mortgage must usually take place within 15 years or before retirement age, whichever occurs first.
MoneyPark can find you the best first and second mortgage
MoneyPark can help you find the best way to finance your home. At our branches we can offer you comprehensive advice on all mortgage issues and accompany you through the entire financing process. Our specialists will also help you devise the most appropriate financing strategy: What type of mortgage should you consider? Is a second mortgage really necessary? Our extensive partner network means you have access to more than 100 sources of financing throughout Switzerland, and thus can take advantage of the best possible offers. We can arrange the best terms for both your first and second mortgage, so you can realise your dream of home ownership without any worries.
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