Affordability and loan-to-value ratio
A mortgage must be affordable. Comparis explains what this means and shows you how to calculate affordability.
iStock / Tinnakorn Jorruang
Ratio between expenditure for the property and buyer's income, expressed in percent. Affordability can be calculated with various formulae. In order to calculate expenditures, often with a loan-to-value-ratio under 66 percent, a calculatory interest rate of 5 percent plus 1 percent of the property value (for renovations necessary to maintain the value) is used as a basis. For a loan-to-value-ratio exceeding 66 percent, a surcharge of 1 percent in amortisations applies. Many mortgage providers will not grant financing if affordability exceeds 33%.
Example with loan-to-value-ratio under 66%
| Value of property | CHF 700,000 |
|---|---|
| Mortgage | CHF 400,000 |
| Gross income | CHF 100,000 |
| Expenditures | CHF 27,000 (CHF 20,000 interest charge, CHF 7,000 maintenance costs) |
| Affordability | 27% (assuming an income of CHF 100,000) |
Example with loan-to-value-ratio exceeding 66%
| Value of property | CHF 700,000 |
|---|---|
| Mortgage | CHF 500,000 |
| Gross income | CHF 100,000 |
| Expenditures | CHF 37,000 (CHF 25,000 interest charge, CHF 7,000 maintenance costs and CHF 5,000 amortization surcharge) |
| Affordability | 37% (assuming an income of CHF 100,000) |
Loan-to-value ratio
The loan-to-value ratio is the percentage of a property's value that is financed by a mortgage. This percentage is also used to calculate the affordability of a mortgage.
Example calculation of the loan-to-value ratio
| Value of property | CHF 1,000,000 |
|---|---|
| Mortgage | CHF 650,000 |
| Loan-to-value ratio | 65% |