How to calculate your mortgage in Switzerland

Buying a property in Switzerland is a significant financial decision, and understanding how to calculate your mortgage is crucial to planning your finances. Whether you’re looking to purchase your first home or refinance an existing property, knowing the exact costs involved can help you avoid unexpected surprises and budget effectively.

In this guide, we’ll break down how to calculate mortgage payments in Switzerland, covering the essential aspects such as interest rates, down payment, amortization, and hidden costs.

1. Understanding the basic elements of a mortgage calculation

Mortgage calculations involve several key factors. Each of these elements affects how much you’ll pay monthly and over the entire loan period. Let's break down these factors:

• Loan Amount: The total amount borrowed from the bank or lender.
• Interest Rate: The amount charged by the lender for borrowing the money, typically expressed as percentage of the loan per year. 
• Loan Term: The length of time for which your mortgage agreement is valid, typically up to around 15 years. 
• Amortization Schedule: A detailed breakdown of how much of each monthly payment goes toward principal and interest.

Example Calculation

For instance, if you're borrowing CHF 800,000 at a 2% annual interest rate, your approximate monthly payment can be calculated using the following procedure. This is assuming indirect amortization, i.e. that the loan amount remains constant over the entire term. 

1. Calculation of annual costs

Let’s assume you take out a mortgage of CHF 800,000 at an interest rate of 2%. The annual costs would be:

2% = 2/100 = 0.02

CHF 800,000 * 0.02 = CHF 16,000

1. Calculating monthly mortgage interest

The monthly costs would therefore amount to:

CHF 16,000 / 12 = CHF 1,333

2. Interest rates and their impact on mortgage payments

Interest rates play a pivotal role in determining the cost of your mortgage. Even small changes in interest rates can lead to significant variations in monthly payments. 

In addition, interest rates depend on the type of mortgage you take out. In Switzerland, the mortgage market offers the following types of mortgage products:

• Fixed-rate mortgages: The interest rate remains constant over the loan term. This option provides predictability in payments. However, in a falling interest rate environment, you may be locked into your interest rate for many years and won't benefit from falling rates.
• Libor or SARON mortgages: Based on short-term interest rates in the money market, these fluctuate based on the SARON index. They thus directly track the interest rate environment, making them an attractive option for buyers expecting rate cuts. 
• Variable-rate mortgages: Typically only used for interim financing, as the rates are much higher than comparable fixed-rate or SARON mortgages. Their main benefit lies in their flexible contract terms, typically allowing borrowers to redeem their mortgage at any time, subject to a notice period. 

Current Mortgage Rates in Switzerland (2024)

These rates can vary greatly depending on the lender, your financial situation, and market conditions. It's advisable to compare different offers or consult with a mortgage broker in order to find the best rates on the market. 

3. Loan-to-value ratio (LTV) and down payment

In Switzerland, one of the critical factors in getting a mortgage is the Loan-to-Value (LTV) Ratio. LTV represents the percentage of the property’s value that the lender is willing to finance. Most Swiss banks provide up to 80% LTV, meaning you must cover at least 20% of the property price as a down payment.

• Property price: CHF 1,000,000
• LTV (80%): CHF 800,000 financed by the bank
• Down payment (20%): CHF 200,000 paid by the buyer

A smaller loan-to-value ratio can result in more favorable terms, but they also mean you need a higher down payment. In general, Swiss lenders require a minimum of 20% of the purchase price as a down payment, with very few exceptions granted. 

4. Amortization: How repayment works in Switzerland

In Switzerland, the loan is generally divided into two parts:

• First mortgage (66% of property value): This does not need to be amortized and is only redeemed upon contract termination. 
• Second mortgage (additional 14%): This must be amortized over a period of 15 years or before reaching retirement age, whichever comes first.

This means that after your down payment, you’ll need to repay the second mortgage over time.

Example (direct amortization):

• Total Loan (CHF 800,000):
  • First mortgage (CHF 660,000)
  • Second mortgage (CHF 140,000)

If you amortize the second mortgage over 15 years, your annual repayment is approximately CHF 9,333, or about CHF 777 per month, on top of interest costs. 

5. Additional costs of homeownership

Aside from the mortgage payments themselves, several other costs need to be accounted for when calculating the true cost of homeownership in Switzerland. These include:

• Notary fees and property registration: 0.2% to 1% of the property value, depending on the canton.
• Property transfer tax: In some cantons, this can range from 1% to 3% of the property’s value.
• Property maintenance: On average, it’s recommended to set aside 1% of the property value per year for maintenance costs. This depends on the age and condition of the property. 
• Insurance and taxes: Homeowners (building) insurance and cantonal property taxes will also need to be factored in.

6. Tax considerations

In Switzerland, you can deduct mortgage interest from your taxable income, reducing your overall tax burden. Additionally, you may be able to deduct maintenance costs and property management expenses. Be sure to consult with a tax advisor to maximize your deductions based on your personal circumstances.

Quick Calculation Summary

For quick reference, here’s a simplified calculation for a CHF 1,000,000 property: