What you need to know about borrowing more on your mortgage
Renovating your home? Do you want to buy a second home? You can borrow more on your mortgage to finance your purchase. Comparis explains when it makes sense to borrow more on your mortgage and what requirements apply.
23.09.2022
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1. When can I borrow more on my mortgage?
Larger investments such as a home improvements or a second home are costly. However, homeowners often have a large part of their assets tied up in their property. If you have insufficient liquidity for a larger investment, you can consider borrowing more on your mortgage.
Additional borrowing for home improvements
Would you like to borrow more on your mortgage for a garden, a pool or a new attic? First, determine how much the improvement will cost. A realistic cost estimate will make it easier obtain a loan for the appropriate amount. You can also receive a grant for energy-saving measures in your home.
Special rules apply depending on the type of renovation:
Maintaining property value: the total amount borrowed on your mortgage may not exceed two thirds of the property's market value. These include roof, heating and façade renovations.
Maintaining property value: mortgage institutions usually let you borrow upward of two thirds of your property's market value. These include garage, conservatory and attic extensions.
Two projects in quick succession for 35,000 francs each, for example, are combined into an increase of 70,000 francs. This saves you time and money. You only have to submit the required documents once. In addition, you only have to pay the administrative fee for the change of contract once.
Additional borrowing for a second home
Do you want to buy a second home? To raise equity for this, you can borrow more on your existing primary residence mortgage. Whether you will qualify for a loan depends on your loan-to-value ratio.
Please note:
The total combined annual cost of a primary and secondary residence should not exceed one third of your household's income.
Buying a summer home usually requires a larger deposit: between 25% and 50% of the property's value, depending on the lender.
Additional borrowing for personal use
Need a loan for a car or tuition fees? Many financial institutions can grant you a loan on your mortgage for personal use, even if you do not use that money for your property.
Have you always met your financial obligations in the past and made a larger deposit than necessary? Then you have a good chance of being able to use the mortgage loan as you see fit. Here, too, the mortgagee must make sure that you can afford the loan.
Additional borrowing before retirement?
Borrowing more on your mortgage a few years before retirement can be risky. You must pay down the mortgage to two thirds of your property value before you retire. The annual rates can therefore rise significantly.
In addition, the affordability of the increased mortgage must also be maintained after retirement. Your income after retirement is decisive for the calculation. A reverse mortgage could be the answer.
2. How can I borrow more on my mortgage?
Your loan-to-value ratio and affordability must remain within allowable limits even after the loan is issued. This means:
Maximum mortgage amount
The desired mortgage amount may not exceed 80% of the property's market value. Exception: in the case of renovations made to maintain your property's value, the mortgage amount does not exceed two thirds of the market value.
Remember that the value of most properties has risen in Switzerland. A loan-to-value ratio of under 80% is therefore not uncommon. Banks often value homes only after a certain period of time after the purchase.
Loan conditions
The total combined annual cost of a primary and secondary residence should not exceed one third of your household's income.
Loan terms vary by institution. You should compare the loan terms of each lender carefully and seek advice from an independent mortgage specialist.
3. Additional mortgage loan: what are the risks?
Borrowing more on a mortgage can be risky. This rings particularly true in the following situations:
Your property has lost value
In the event of an increase in the mortgage, the financial institution checks the current value of your property. Property prices usually go up over time. However, it may also be that your home has lost value because of the state of the building, the current market or location.
If the price falls, the maximum loan-to-value ratio also drops. If the original mortgage amounted to 80% of the market value, you now have to fork out money to the bank, and your loan application will be rejected.
You earn less
You should apply for a mortgage loan before shortening your workweek. Financial institutions verify your current income when you apply for an additional loan. If it is not sufficient, the bank may demand further collateral or ask you to pay down your mortgage.
You have miscalculated
Home improvements can quickly prove more costly than planned. In the worst case scenario, you may even have to apply for additional borrowing on your mortgage during construction work if you run out of money. Work out your project costs as precisely as possible and get professional support.
4. Sample calculation: additional borrowing on mortgage
This table shows you the total annual cost of a mortgage. On the assumption that
Increase of 100,000 francs three years later
Gross income increased to 170,000 francs
The calculations were made using the Comparis mortgage calculator.
| Situation when taking out the original mortgage | Situation at time of loan application | |
|---|---|---|
| Market value | CHF 1,000,000 | CHF 1,100,000 |
| Deposit | CHF 300,000 | CHF 300,000 |
| Mortgage | CHF 700,000 | CHF 800,000 |
| Loan-to-value ratio | 70% | 73% |
| Gross income per annum: | CHF 142,000 | CHF 170,000 |
| Effective interest burden 5% | CHF 35,000 | CHF 40,000 |
| Amortization per annum up to two thirds of market value, time to retirement: 15 years | CHF 2,224 | CHF 5,556 |
| Maintenance and ongoing costs per annum | CHF 10,000 | CHF 11,000 |
| Total cost (per year in francs) | CHF 47,223 | CHF 56,556 |
This article was first published on 11.06.2021