Mortgage loan: definition and how it works

In Switzerland, buying a property typically involves a mortgage loan.

This is a loan granted by a bank and secured by the property itself.

In practice:

• part of the purchase is financed with your own funds,

• the remainder is financed through a loan,

• the property serves as collateral.

How does a mortgage loan work?

A mortgage loan is based on a collateral mechanism.

In case of default:

• the bank has a legal claim on the property,

• and may sell it to recover the outstanding amount.

This structure ensures:

• security for the lender,

• appropriate financing conditions.

The role of equity

A personal contribution is required.

In Switzerland:

• a mortgage generally covers up to around 80% of the property’s value,

• the remaining 20% must be financed with equity.

This equity may come from savings or pension assets.

The structure of a mortgage

Mortgage financing is typically structured in two parts:

• a first mortgage, representing the main portion,

• a second mortgage, which must be amortised within a specified timeframe.

This structure helps organise repayment over time.

Costs associated with a mortgage

The main cost components include:

• interest on the borrowed capital,

• amortisation,

• property-related costs considered in the affordability analysis.

These elements determine the financial burden of the project.

Assessing your financing capacity

Before granting a mortgage, the lender assesses:

• your ability to cover the costs,

• the relationship between the loan and the property value.

This assessment relies on:

• the loan-to-value ratio,

• the debt (affordability) ratio.

The objective is to ensure a sustainable financing structure.

A long-term commitment

A mortgage is a long-term commitment.

It requires:

• careful planning,

• anticipating changes in income and costs,

• a long-term perspective.

Integrating a mortgage into your strategy

Mortgage financing should be part of a broader approach including:

• your overall wealth situation,

• tax considerations,

• your financial strategy.

The objective is to build a coherent and sustainable structure.