9 steps to your new mortgage
If your dream of owning a home is getting closer, you should think about arranging a mortgage. Comparis guides you through the steps.
07.11.2024
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Low interest rates are fuelling people’s desire to own a home. However, it’s important to make sure you have the right financing in place. Taking out a mortgage usually entails entering into an arrangement with a bank lasting several years. It’s therefore wise to note the following points before signing on the dotted line.
Step 1: decide what sort of home you are looking for
Do you want a new house in the countryside? Or do you dream of an apartment in the city? Decide on the criteria for your new home.
Still unsure whether home ownership is the right choice for you? Consider whether you are more of the rental or purchase type.
Step 2: monitor interest rates
The lower the mortgage rates, the lower your housing costs, so check the mortgage rates offered by lenders regularly. You will see that the offered mortgage rates vary depending on the term and provider. Some lenders stand out because they offer especially attractive terms.
Step 3: find out about the different financing strategies for your home
First, you can use the mortgage calculator to work out the affordability and loan-to-value ratio. Basically, this will help you determine what down payment and income you need to buy your dream home. As a general rule of thumb: you need a down payment of at least 20%. Your down payment can come from different sources.
However, at least 10% must be from sources other than your occupational pension. Plus, your annual housing costs may not exceed 33% of your gross income.
How much liquidity do I need?
Buying a home can entail unexpected costs – for example, due to renovations that suddenly become necessary. Therefore, you should keep at least 5% of the property value available as a liquid reserve.
Do I even need a mortgage?
No-one likes being in debt. Nevertheless, it’s not necessarily the best option to choose the lowest possible mortgage or to dispense with a mortgage altogether.
In Switzerland, it can actually be advantageous to leave part of the property value as a mortgage instead of paying it off in full.
This is due to the imputed rental value, which is considered notional income and is treated as additional income for tax purposes. If you keep a mortgage, you can deduct the mortgage interest from the taxes, which can reduce your tax burden.
Compare mortgages
Find the strategy that’s right for your personal situation and risk appetite.
Step 4: choose your mortgage model
Have you already chosen a suitable mortgage model? You can choose between a mortgage with a fixed rate and term and a Saron mortgage with a variable rate.
You can work out your mortgage strategy based on these two factors:
Risk appetite: how much risk am I able and willing to take?
How much flexibility do I need?
| I need flexibility | I don’t need flexibility | |
|---|---|---|
| Risk-averse with risk capacity | Fixed-rate mortgage with exit option or Saron | Long-term fixed-rate mortgage |
| Risk-averse without risk capacity | Fixed-rate mortgage with exit option, otherwise better to rent | Long-term fixed-rate mortgage |
| Risk-tolerant without risk capacity | Fixed-rate mortgage with exit option, otherwise better to rent | Long-term fixed-rate mortgage |
| Risk-tolerant with risk capacity | Short-term fixed-rate mortgage or Saron | Any option is conceivable depending on interest rate expectations and the interest rate differential |
Step 5: prepare a compelling dossier
Submit a complete and clear dossier. This will help you negotiate successfully with the mortgage lender. Experience has shown that financial institutions take you more seriously as a negotiating partner. What belongs in the dossier can be found in our document checklist.
Step 6: negotiate
Negotiating is part of the mortgage business, because as the term “indicative interest rate” suggests: the advertised mortgage rates are not fixed – there is room for negotiation.
Don’t settle for the first best deal you find and don’t rush into your mortgage.
For example: even an interest rate difference of 0.2% with a 10-year term and a mortgage amount of 500,000 francs means savings of around 10,000 francs.
Step 7: find a lender
Around 70% of mortgage borrowers choose their principal bank when financing their home.
Mortgages are not only available from banks. Pension funds, insurance companies and investment foundations also offer them. The mortgage rates can sometimes vary significantly between providers.
Only one in 10 mortgage holders do not take out a mortgage with a bank, but with an alternative provider with potentially more favourable conditions. This is shown by a representative survey by Comparis (not available in English).
You should therefore look at the detailed quotes available from different lenders and seek advice from an independent mortgage specialist. Independent mortgage experts have extensive knowledge of the various lenders’ rates and conditions and are often able to obtain better deals. Important: start your search for a lender in good time.
Step 8: take out your new mortgage
Found your dream home? Defined your financing strategy? Found a potential lender? Then nothing stands in the way of taking out a mortgage.
Important: in order to be valid, the contract for the purchase and sale of a property must be certified by a notary. Find out from your commune or canton how the notary offices operate (link not available in English).
Step 9: when to think about refinancing
You should start thinking about refinancing around 18 months before your current mortgage comes to an end. It may make financial sense to switch lender.
Even though your fixed-rate deal expires on a set date, you still need to cancel it. In most cases, if you don’t take action, your fixed-rate mortgage will be converted to a variable-rate mortgage when it expires. Also, you won’t be able to switch to another lender straight away.
Therefore, check your agreement and the specified notice period.
This article was first published on 09.01.2021
