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Sunday | 1. October 2023
Just six months ago, you could practically do no wrong when taking out a new mortgage or renewing an existing one. Now, however, the tide has turned, and anyone faced with the decision to take out a mortgage should understand at least the basics of how a mortgage interest rate is made up and what factors influence it.
The mortgage interest rate refers to the costs that you have to pay annually for a mortgage, i.e. the financing of a property. In each case, the interest is expressed as a percentage of the total mortgage. An example illustrates this:
A mortgage of CHF 2,000,000 has an interest rate of 1%. You therefore have to pay mortgage interest of CHF 20,000.- per year, which corresponds to a monthly payment of CHF 1,666.70.
Various factors play a role in the amount of the mortgage interest rate. The most important of these are listed below:
National and international economic situation - in particular interest rate level
The mortgage model that is chosen as well as the term (fixed mortgage, variable mortgage or SARON mortgage)
The provider with whom the mortgage is concluded (bank or insurance company) and its credit strategy
The creditworthiness and debt ratio of the mortgage
The condition of the property and its location
If you look at these influencing factors, you will quickly realize that you can only influence a few points yourself. Probably the biggest aspect that can be controlled by you is your Credit rating as well as your Debt-equity ratio.
Is it about the State and the Location of the property to be purchased, you can of course make sure that both points score positively. However, if you like a property that does not have an optimal location, for example, you can of course not change this factor.
Is it about the Mortgage model and the matching Provider, you can choose between a wide range of options. Here in particular, it is important that you take a close look at your current circumstances and your personal wishes and possible interest rate developments beforehand. Due to the complexity, however, it is often advisable to involve an independent financial advisor.
The factor, which you cannot influence at all, is the national and international economy, especially the interest rate level.
Depending on the life situation you are in and the goals as well as desires you are striving for, different reasons are motivators for investing in a property. Regardless of the reasons, the personal financial situation always plays a key role. This is because in order to purchase a home of one's own, 20% of the purchase price is usually required in the form of personal funds. In addition, the home must be affordable, which means that the monthly costs do not exceed one third of your gross income.
When retirement is just around the corner, your financial situation also changes: Often your pension from AHV, pension fund and 3rd pillar is lower than your previous income. On the other hand, it is quite possible that your assets will increase due to the payout of a life insurance policy.
In the third stage of life, it is important for you to know that you may use the entire pension capital (10% must be hard equity) in the second pillar for home ownership up to the age of 50 and only half of it after the age of 50. It is therefore essential that you deal with the issue of home ownership and financial options early enough.
Rising inflation worldwide has not spared Switzerland either. Since mid-August this year, mortgage rates have been rising again. This is an instrument of the Swiss National Bank to counter inflation.
The increase in the mortgage interest rate also increases the monthly housing costs for real estate owners, which leads to new mortgage strategies. This in turn leads to a decreasing attractiveness of home ownership compared to renting.
How the situation will develop for mortgage borrowers in the future depends to a large extent on how high inflation and, consequently, the SNB's key interest rate will be. However, it can be assumed that such a sharp increase as was the case at the beginning of the year will not occur again. Mortgage interest rates are therefore likely to remain within the current range, although high fluctuations must continue to be expected in these uncertain times in Switzerland.
Gzim Hasani, CEO of smzh, advises, "My recommendation for taking out or renewing your mortgage is made up of four main components: Check several providers, rely on the right advisors, conduct an analysis of your current living situation and have the property value checked. Of course, the mortgage rate is very important, but the amortization amount and financial flexibility should also be considered."
Media office:
Melanie Guenthardt | +41 43 355 12 84 |
presse@smzh.ch