Affordability and loan-to-value ratio

A mortgage must be affordable. Comparis explains what this means and shows you how to calculate affordability.

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A house is positioned on top of a pile of coins. Affordability is key when applying for a mortgage.

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)
Calculate affordability and loan-to-value ratio

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%
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