Personal loan or mortgage: which is more suitable?

A mortgage is usually the most suitable way of financing a home, but a personal loan may also be appropriate in some cases. Which option is best for you?

Thinking of renovating? We show you how best to finance the project. The pros and cons of mortgages and personal loans.

iStock / Pattanaphong Khuankaew

Depending on the amount and the purpose of the loan, both mortgages and personal loans can be suitable for financing a home purchase. In some cases, such as if the loan amount is too low for a mortgage (usually less than CHF 250,000), a personal loan provides an alternative option. Find out here which works best for you.

Comparison: mortgage vs personal loan

	Variable-rate mortgage	Personal loan
Loan amount	Depends on affordability and loan-to-value ratio In practice, fixed-rate mortgages are usually only offered on loan amounts of CHF 250,000 or more.	Consumer loans up to CHF 80,000 (as per Consumer Credit Act) Some lenders will approve personal loans for higher amounts. Amounts of up to CHF 250,000 are possible, sometimes more.
Conditions	Mortgage rates of between 0.50% and 1.50% The rate depends on the mortgage type and length. Basically, the longer the term, the higher the interest rate. As a rule, no mortgages are offered on amounts less than CHF 250,000. Check current mortgage rates.	Interest rates of between 4.40% and 9.95% For loan amounts of over CHF 80,000, consumers are not protected by the Consumer Credit Act.
Fees	Fees for additional borrowing and notarial services Notary fees if the mortgage certificate must be increased Additional fees vary by lender	No additional charges The Consumer Credit Act stipulates that all fees must be included in the interest rate.
Purpose of loan	Renovation and refurbishment in the narrower sense Loan purpose is generally tied to the property. Quotes are required when applying for additional borrowing.	Anything to do with the home (including fittings and furniture) Personal loans are not usually tied to a specific purpose. Lender does not carry out an impairment test on the investment.
Time and effort required for a credit check	1-2 weeks Full calculation of affordability and loan-to-value ratio including the time needed for the applicant to hand in the required documents	1-3 days Standard credit check in accordance with the Consumer Credit Act The bank may request an extract from the land register.
Disbursement	For a new purchase Disbursement only after transfer of ownership and entry in the land register For additional borrowing for renovation/refurbishment Disbursement only on submission of quotes and invoices	Disbursement of full amount after a legal cooling-off period of 14 days Exception: amounts of over CHF 80,000 can be transferred as soon as the loan has been approved.
Amortization/repayment	Defined by the mortgage lender The lender defines the amortization payments. Amortization is compulsory for a certain amount (up to two thirds of the property's value, within 15 years). Amortization can be linked to payments into pillar 3a pension solutions (indirect amortization).	Fixed monthly instalments Monthly instalment comprises interest and amortization. Early amortization is possible at any time and free of charge. It is possible to pay more than the agreed instalments at any time and free of charge.
Tax implications	Mortgage interest can be deducted from your taxable income. A flat rate of 10-20% of the imputed rental value (taxable as income) can be deducted from your taxable income. Value-preserving, ecological and energy-saving investments can be deducted from your taxable income. Value-enhancing investments cannot be deducted from your taxable income but can be taken into account when selling to reduce or even avoid property capital gains tax.	Deductibility of value-preserving investments Value-enhancing investments are not tax-deductible. Distinction between value-preserving and value-enhancing investments varies from one canton to another. Debt interest in connection with the personal loan may be deducted from your taxable income.
	For a mortgage quote, contact the independent mortgage specialists at HypoPlus AG, part of the Comparis Group. Learn more about mortgages	Request a personal loan quote free of charge and with no obligation. Apply for a loan

Tips

Make sure that the property's maximum loan-to-value ratio has not yet been reached. If you have already borrowed the maximum amount on your property, your only remaining option is to take out a personal loan.
Early amortization or refinancing is possible for both loans and mortgages and often makes sense. You should certainly consider refinancing a fixed-rate mortgage when it comes to an end.
If you have a mortgage and the lender discovers when checking your application that the affordability conditions are no longer met (e.g. if your household income is now lower than when you took out the mortgage), you may be required to contribute additional capital even if you have an impeccable payment history.
Important: before renewing your mortgage, ensure that all loans are paid off. This is because any outstanding loans may affect your mortgage application.