What do I need to consider before taking out a mortgage and how can I find the right financing solution for me?
Many future homeowners do not have the necessary know-how on the subject of home ownership, which is why they may feel overwhelmed before they actually take out a mortgage. This is not surprising due to the many sources of information and since taking out a mortgage involves a lot of money and responsibility, the financing should be well planned in advance and the costs calculated correctly. Following and sticking to a few important tips and tricks when taking out a mortgage can protect you from unpleasant surprises, which is why we have summarised the most important points for you:
Pay attention to the most important key figures:
Affordability and loan-to-value are two of the most important factors in the mortgage world and you should know and understand the meaning of these key figures. The loan-to-value ratio describes the ratio between the mortgage and the market value of the property as a percentage. It tells you how large your mortgage is in relation to the purchase price or the lender’s property value assessment. As a rule, most lenders finance owner-occupied residential property up to a maximum of 80 percent of the market value, which means that you have to contribute 20 percent of your home yourself. In addition, the affordability rule states that the running costs of your home should not exceed 1/3 of your gross household income. These costs include the mortgage interest, any amortisation payments and annual maintenance and ancillary costs.
Check the possible sources of equity financing:
The 20 percent that you must contribute in equity capital can come from various sources, such as the second and/or third pillar. However, obtaining such funds is regulated by rules and conditions that must be clarified in advance with the relevant institutions. In addition, ten percent of the equity capital must be provided as “hard” equity capital, i.e. mostly in the form of cash assets. The inclusion of private loans is also possible, but depends on various factors such as the date of repayment. You should keep such possibilities in mind and discuss them with the mortgage provider.
Choose the right strategy:
Do you want to make a short-term or long-term commitment, or are you more inclined towards a long-term fixed-rate mortgage or flexible financing solutions such as the SARON mortgage? Do you value security or should your home be as cheap as possible? Of course, mixed forms (e.g. 50% fixed-rate mortgage and 50% SARON) can also be concluded. You should ask yourself questions like these and clarify them with your financial advisor. The answers depend very much on your individual situation and life situation, which is why it is important to deal with these issues in advance. Especially in the current volatile interest rate environment, the strategy must be well thought out, as each strategy has its advantages and disadvantages. If you would like to learn more about the different strategies, click here.
Choose the right provider:
Whether pension funds, insurance companies or traditional banks: the choice of mortgage providers is large and diverse. There are also many online mortgage providers available nowadays that offer you the closing of the mortgage at the click on a button and without a personal consultation. It is therefore not surprising that choosing the right provider is also becoming an agony of choice for many home buyers. It is important that you compare the providers, because what applies to one lender (e.g. flexibility regarding the affordability calculation) does not necessarily apply to another lender. The advantage for you, however, is that you can benefit from independent mortgage advisors like HYPOHAUS. Free of charge and without obligation, we will analyse your individual situation together and find the right lender for you. Would you like a no-obligation consultation? Then click here.
Your main bank of many years does not necessarily have the best offer ready for you, which is why you should obtain various offers from different lenders – and not immediately sign up for the first offer that comes along. In some cases, the offers differ by several thousand francs per year, and many financial institutions are also willing to negotiate and approve discounts for customers with low loan-to-value ratios and affordability.
Buying or building a property comes with many obligations that affect not only you alone, but also your close family. To protect your loved ones, you should consider potential risks such as divorce, death, etc. in advance. You also need to think about your future retirement, as your income will usually decrease and the affordability calculation may no longer work out. In general, the loan-to-value ratio should be reduced towards retirement. Such eventualities must be discussed and clarified with the mortgage provider or your contact person before taking out a mortgage.
With these tips and tricks, you should be well equipped for the negotiations. Do you have any further questions or comments? Of course we will support you in finding the right mortgage, feel free to contact us!