Mortgage advice: How it works, Calculations and notary fees
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In Switzerland, a mortgage is a privileged way to access home ownership. It's simply a matter of acquiring a property, which you pledge as collateral for part of the mortgage. This solution, which is reassuring for banks, can also enable you to benefit from tax optimization. In this article, you'll discover our top tips for understanding mortgages and getting the best out of them.
How mortgages work in Switzerland
Our first piece of advice is to understand how Swiss mortgages work before you take the plunge.
First and second mortgages
In Switzerland, the bank lends you enough to finance 80% of your property. A first mortgage is one that covers up to two-thirds of the value of the investment, using the purchased home as collateral. You can choose to repay this part of the mortgage voluntarily. Alternatively, you can negotiate not to repay the value of the home and simply pay the interest on the loan. You may then be able to use the money you don't use to pay off your property. It can even help finance your pension provision.
The 2nd mortgage is the one that covers the remaining 10-15%, which cannot be secured by pledging the home. This part of the mortgage is subject to what's known as the amortization obligation. In other words, you must repay the capital lent to you, in addition to the interest specified in the contract.
Direct or indirect amortization
If you've understood the previous paragraph, direct and indirect amortization follow directly from it. Direct amortization corresponds to repayment of debt and interest. The amount due will therefore decrease progressively.
Indirect amortization corresponds to the mechanism described above. The capital lent under the second mortgage may not be repaid. You can pay in the amount corresponding to the repayments to contribute to the third pillar of your pension provision.
The 3rd pillar to finance a property
In Switzerland, personal pension provision is broken down into three pillars:
- State pension provision, which guarantees a minimum standard of living
- Occupational pension provision, which provides you with your usual standard of living
- The 3rd pillar, which you can choose to set up to meet your additional needs
Thanks to the financing of your property, you can therefore make your money grow thanks to the 3rd pillar of Swiss pension provision. This mechanism is particularly interesting when interest rates on savings are higher than interest rates on credit.
What are the costs of buying a home in Switzerland?
In addition to the interest rates and administrative costs associated with your mortgage, you'll also have to pay a number of fees to the government or your notary. Our second useful tip is therefore to be fully aware of all these costs, so you can better anticipate them.
Notary fees for a mortgage
Notary fees are calculated according to the price of the property. It's important to note that the scale is degressive. The higher the purchase price, the lower the rate. They are generally between 3% and 5% of the total value of your real estate investment. Notary's fees represent only 0.25% to 0.5% of the amount payable. In other words, the term "frais de notaire" (notary's fees) is rather misleading, since the notary only receives a small share of the amount paid.
The establishment of the mortgage deed
The establishment of the mortgage deed formalizes the pledging of the property as collateral for the loan. This operation alone costs around 2.5% of the value of the property. 1.365% goes to the state, 0.2% to the land registry and the rest goes to the notary who handles the creation of the deed.
The creation of the deed of purchase
The deed of purchase is that which attests to the transfer of ownership of the property. You are charged 4% of the sale price excluding VAT. 3% is levied as transfer tax, 0.3% is remitted to the financial register and the remaining 0.7% is collected by the notary.
Compare mortgage offers
To invest with a mortgage, you'll need to choose between several offers from banks. Understanding the different mortgage models available on the Swiss market is essential.
The mortgage model
You can opt for a fixed-rate mortgage. As the name suggests, interest rates are fixed when the contract is signed and remain unchanged until the end of the commitment. This solution is recommended if you want to anticipate your expenses precisely and not be subject to the vagaries of the market.
You can also opt for a variable-rate mortgage, with a rate that adapts to market rates. This solution can bring you valuable savings, when rates tend to fall. The SARON mortgage is a variant of the variable-rate mortgage, indexed to SARON. When opting for this type of mortgage, the advice of a financial professional can be useful in trying to anticipate market variations.
Finally, it's perfectly possible that banks will offer you their own mortgage models. You may, for example, benefit from a reduced rate if your home meets certain environmental criteria.
Interest rates and options
Interest rates can be compared from one offer to another. You should nevertheless check that you're putting equivalent contracts in competition in terms of options and guarantees. For example, it's normal for a flexible mortgage that allows you to change models during the course of the contract to cost more than a conventional mortgage.
Special offers
It's quite common for banks to offer special deals to new customers. So you need to keep an eye on the market and compare several players to find the most advantageous solution. Please note that most of the time, these welcome offers come to an end after the duration of your commitment. So you'll need to look again for the best alternative when you renew your mortgage.
Updated on: 31.01.2024Written by Valery ChantepyHead of mortgage department at CompareaTo learn more about our team click here.