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Mortgage borrowers are legally required to pay at least 20% of the construction or purchase price of a property in the form of a deposit, the rest being financed by the mortgage.
The first mortgage usually only covers up to two thirds of the purchase price, which represents a loan-to-value ratio of 66%. The remaining 1-14% is covered, if necessary, by a second mortgage. Because of the higher risk of loss, the lender generally applies a higher interest rate to the second mortgage (0.5-1.0% more than the first mortgage).
Apart from the higher interest rate, the main difference between a first and second mortgage is that the second is subject to the rules of amortisation. While the first mortgage has an unlimited term, the second mortgage must be paid off within a fixed repayment term. This can vary slightly from lender to lender, but the second mortgage is typically paid off within 15 years or by retirement age, whichever is sooner.
For a property purchase price of CHF 1,000,000, the buyer pays a deposit of CHF 250,000 (25%). In this case, the loan-to-value ratio is 75%. The amount of the first mortgage is CHF 650,000 (65%), with the second mortgage covering the remaining CHF 100,000 (10%).