A mortgage is not a loan

Many people understand the term “mortgage” to mean “a loan for real estate”. But that's not entirely correct. Technically speaking, a mortgage is the right that a “lender” has to your property because of the loan they are giving you. And so, what is commonly known as a “mortgage” is actually called a “mortgage loan”. But that’s not the term we will be using here because at PostFinance, we simply use the more common term.

Which mortgage is best for me?

Variable-rate mortgage, Saron or fixed-rate mortgage – there are very different types of mortgages available. We'll explain the most important differences here. You can also find further information about mortgage solutions on our mortgage page.

Planning security thanks to fixed-rate mortgages

One of the most popular choices for a first-time mortgage is the fixed-rate mortgage. This is a way of hedging against rising interest rates as interest remains unchanged during the mortgage term chosen. You can choose the duration of fixed-rate mortgages yourself. In times of low interest rates, there is strong demand for long terms. PostFinance offers fixed-rate mortgages with terms of up to 15 years. Thanks to the fixed rate of interest, you can budget your housing costs precisely, and you have an exact idea of your financial obligations for the years to come.

Our tip

Make sure you check the terms and conditions in case you decide to end the deal prematurely, especially if the mortgage term is long.

Do you want to know how a forward mortgage works? Go to the article “Forward mortgage: protect yourself against rising interest rates”.

Maximum flexibility with variable-rate mortgages

Variable-rate mortgages generally involve an unlimited mortgage term and can be cancelled very quickly. The benefit of this mortgage is that it can be terminated prematurely, allowing you to switch to other types of borrowing. In theory, the bank adjusts the interest rate to the latest market conditions, so you could benefit from a falling interest rate environment. Experience in recent years has shown that many mortgage providers have barely lowered the interest rate for variable mortgages at all during periods of low interest rates. This may be due to the fact that this mortgage model has become increasingly less important in recent years.

Take advantage of current interest rates with a Saron mortgage

A Saron mortgage offers a variable interest rate, as it has a fixed but shorter mortgage term than a fixed-rate mortgage. It is a type of money market mortgage based on the Swiss reference interest rate SARON® (Swiss Average Rate Overnight). The interest rate on the Saron mortgage is variable: if the SARON® falls, the mortgage interest rate falls; if the SARON® rises, the mortgage interest rate rises. Unlike a fixed-rate mortgage, the interest rate for this financing solution is not fixed in advance over the term, but is adjusted every three months. The product is suitable for customers who assume that interest rates will remain the same or fall.

Combine different types of mortgage by splitting a product into tranches

Splitting up or combining these two types of mortgage can also be well worthwhile. This process involves splitting a product into two or more tranches (from the French meaning “slice”) with different mortgage terms. The benefit of doing this is that you will not have to roll over the whole mortgage at the same time, so you can respond more flexibly to interest and to your current circumstances. This can, however, come with certain disadvantages, for example if a person decides to switch to a cheaper provider or if they decide they would like to synchronize the terms of their current mortgage.

Consider affordability and your loan early on

Start keeping track of affordability and your loan (i.e. for the sum you are not covering with equity) at an early stage for your property. The mortgage calculator will help you find favourable conditions.

This is how you can reach the required equity

Equity means the total amount of equity available for the purchase of a property, and 20% of funding must be covered by equity. But this can come from various sources. However, 10% of the property’s value/purchase price must be covered by genuine equity. This includes for example:

• Your own savings
• Securities such as shares
• Gifts/advances against inheritance
• Assets from pillar 3a

If you are going to live in your own home, you can yield a further 10% of the purchase amount through advance withdrawal or pledging from your pension fund. This does not apply to the purchase of holiday apartments or properties acquired for rental purposes only. It is a good idea for people close to retirement age and families with minors in particular to carefully consider the potential risks of a purchase.

Affordability as a reality check for your dream of home ownership

There are additional costs besides equity: for one thing, there is the interest that needs to be paid on the mortgage to the bank or lender. Then the mortgage itself must be paid off, which is known as amortization. Lastly, home upkeep will also be quite a hefty expense. All of these costs must be “affordable” with your available income.

As such, affordability refers to the ratio between expected income and costs incurred, and for them to be “affordable”, they should not constitute more than a third of your (joint) gross annual income.

Our tip

It makes sense to assume a higher interest rate than the rather low mortgage interest rates we are currently seeing, especially when it comes to variable money market mortgages with interest rate fluctuations. This is why, when calculating interest, banks use what’s known as an imputed interest rate as a basis, which is currently around 5%.

Do you need to own your own home?

The idea of a mortgage is to make things easier for you in your own home, whether it’s a house or an apartment, and not to place an extra burden on you in your everyday life. That's why it’s important to do plenty of research into this type of loan and to set aside enough equity to cover it. It is not always worth investing in home ownership. Maybe renting would be cheaper for you? Switzerland is still a country of renters compared with the rest of the world seeing as its rate of home ownership is only about 40%. This is why it is a good idea to do plenty of research and to seek advice. You can find more information on this in our article “Renting or buying: which is the best option?”.

Of course, having your own house is not just about money. In addition to the financial side, having your own property is also a major step in life. If you decide home ownership is the way to go, you are also choosing a certain way of life. So make sure to take your time when making this decision and choose the solution that best suits your lifestyle.