Reverse mortgages in Switzerland: a solution for older borrowers

1. What is a reverse mortgage or property-based annuity?

A reverse mortgage, or property-based annuity, is a fixed-rate mortgage. In the case of a reverse mortgage, the mortgage of a fully – or almost fully – paid-off property is increased again to a maximum of two-thirds of the market value. The exact amount of the new loan may vary according to mortgage lender. From this sum of money, the lender deducts interest for the entire term of the mortgage (usually 10 to 15 years).

2. How do reverse mortgages work?

This amount is paid into a blocked account and is used to service future interest payments. The amount of the increase minus the interest is transferred as a lump sum or monthly payment to the homeowner's account. This extra money allows pensioners to maintain their standard of living.

3. Who is a candidate for a reverse mortgage?

A reverse mortgage is suitable for retired mortgage borrowers on tight (pension) incomes but who have (almost) fully paid off their property. Their assets are largely tied up in their home and are not available to cover expenses after retirement. For them, it is worth considering a reverse mortgage as an alternative to selling their property.

4. What is the problem with a mortgage after retirement?

With a conventional mortgage, the lender will check not only the loan-to-value ratio, but also how much the borrower can afford. The classic affordability calculation states that mortgage interest, repayments and maintenance may not exceed one third of the income. However, the reduction in income after retirement means that the mortgage may no longer be affordable. Retirees and seniors may therefore find it difficult to increase or extend their mortgage.

You should therefore check in good time – after the age of 55 at the latest – whether you will still be able to afford your home after you retire. This will give you enough time to boost your pillar 3a or 3b savings or make up any shortfall in your occupational (pillar 2) pension. You can check affordability using the Comparis mortgage calculator.

5. When does the reverse mortgage fall due?

A reverse mortgage falls due for payment at the end of its term, so you must then find a way of refinancing it.

What if the value of the property has risen?

If the value of the property has risen during the term, you'll be able to take out a new reverse mortgage. Even a relatively modest increase in value of 1.5% per year represents nearly 20% over a 12-year mortgage term. Perhaps the borrower is planning to move to more age-appropriate accommodation, however. In this case, the property can be transferred to the children or sold on the open market.

What if the value of the property has fallen?

The outlook is less promising if the value of the property declines over time. Then the loan-to-value ratio may rise to over 65%. This may necessitate an extraordinary repayment or even the sale of the property.

Considering a reverse mortgage? Then you should seek comprehensive advice and weigh up the pros and cons of this type of solution.

7. Reverse mortgage: which providers offer a property-based annuity?

Currently, only selected providers offer reverse mortgages, sometimes referring to them as property-based or real estate annuities. Mortgage specialists can help to find suitable lenders.