EXPLAINED: How to save on your mortgage in Switzerland
Buying a home will be one of the biggest financial commitments any of us face. Here's how to save on a mortgage in Switzerland.
As the only country in Europe where more than 50 percent of people rent their home, Switzerland has the lowest home ownership rate on the continent.
This is due to a variety of factors, including strong tenancy laws, culture, cost and a scarcity of land.
There are some however who are keen to buy their own home - and evidence suggests this number is growing.
READ MORE: Why do so many Swiss prefer to rent rather than buy their own home?
While having enough cash is an important starting point, there are also a range of other factors to be taken into consideration.
Here are some tips for mortgages in Switzerland.
Give yourself time - more time than you think you need
Buying a home will be one of the most important and consequential decisions you ever make, so give yourself plenty of time beforehand.
Speak to other people who have bought homes recently and several years ago.
Get to know the relevant terminology for your part of Switzerland so that you know what you are talking about.
For instance, what was a LIBOR mortgage - and what is a SARON mortgage - and how has the latter replaced the former?
A low interest rate is great, but can you pay the mortgage off early. If not, you may end up costing yourself a whole lot more.
Is the interest rate fixed or variable? And if it is variable, what happens when rates rise?
Below are just some general tips to consider, but remember that you can never investigate too much.
Check out the following link for more specifics on the costs of buying a home in Switzerland.
EXPLAINED: The hidden costs of buying a home in Switzerland
Is taking out a mortgage to buy a home in Switzerland a good decision?
Interest rate rises haven’t quelled rising demand for properties, nor has the impact of the pandemic.
Speaking with Swiss news organisation Tamedia, property expert Patrick Schnorf said demand is set to continue.
"We assume that due to immigration, high birth rates and household divisions, demand will remain the same in the near future,” Schnorf said.
"People have saved a lot (during the Covid pandemic), many have a secure income, these are the driving factors,"
In fact, the Covid pandemic has not dampened demand, but has channeled it towards a different type of property.
Larger properties with more rooms and gardens have seen greater demand as a consequence of lockdowns and working from home requirements
"The radius of the real estate search has therefore also extended to the surrounding rural regions," explained Schnorf.
READ MORE: What does the coronavirus mean for Switzerland’s property market?
While lockdowns look to be over and the working from home rules have come to an end, experts argue that some of these changes are more than mere trends and are likely to be permanent.
What types of mortgages are there in Switzerland?
There is a relatively wide array of mortgages on offer in Switzerland, but here are some of the main ones.
Not unique to Switzerland is the fixed-rate mortgage, where you pay an agreed rate on your mortgage over a set period of time. This is the case regardless of interest rate trends.
Also not unique to Switzerland is the variable mortgage, where rates are subject to market fluctuations.
Comparatively unique to Switzerland is the SARON (Swiss Average Rate Overnight) mortgage.
The SARON mortgage replaced the LIBOR mortgage (London Interbank Offered Rate) at the start of 2022.
The interest rates for SARON mortgages are variable and are calculated on the basis of the SARON reference rate.
The SARON reference rate takes into account actual transactions in the Swiss money market (unlike the LIBOR rate which was calculated on the basis of recommendations from a handful of banks) and is therefore believed to be more transparent.
Know and understand Swiss deposit rules
Before you even begin thinking about buying a home, you need to know that higher deposits are required in Switzerland than many other countries.
The minimum deposit in Switzerland is around a fifth (20 percent) of the total purchase cost.
This is much higher than the five percent often seen in English-speaking countries, but it’s much lower than the 40 percent sometimes required in Germany.
While you might have just felt your home ownership dreams disappear with a whoosh, only half of that 20 percent figure should come in cash.
The other half can come out of equity.
It can also come out of your pension fund – although if you’ve only recently arrived in Switzerland, you might not have that much cash stashed in there.
READ MORE: Can foreigners buy property in Switzerland?
Switzerland has low interest rates - but be aware of fluctuations
Swiss interest rates have been low for years, creating an ideal situation for anyone wanting to borrow money to get onto the property ladder.
But just because something has been a certain way for a while doesn’t mean it will stay that way - and even a quarter of a percent increase in interest rates can have significant impacts on the average mortgage.
Inflation has already hit highs in Switzerland - and more appears to be on the way.
READ MORE: How to protect your savings against inflation in Switzerland
In January 2022, several financial institutions announced that mortgage rates were on the rise due to a likely rate increase from Switzerland’s National Bank.
That said, interest rate hikes are not necessarily permanent - but be sure to incorporate scope for rate fluctuations into your budget.
Don't just stick to banks
It might sound counter intuitive, but avoiding banks might help you save on a mortgage.
Insurers often have competitive rates for mortgages that beat out what the banks have to offer.
Generally speaking insurance companies offer fixed term mortgages and interest rates are lower than those offered by the banks, although you may need to commit to a longer term.
To sweeten the deal, insurers will often throw in discounts on other insurances, i.e. life insurance or home and contents.
They will not allow you to use your pension funds as equity, which means you’ll need more cash for a deposit.
Insurance companies also have a range of other rules related to amortisation, loan to value ratios, etc, which are more strictly enforced - so getting a mortgage with an insurer can be more difficult.
Some insurance companies offering mortgages in Switzerland include Allianz Suisse, Axa, Baloise Bank SoBa, Generali, Helvetia, Swiss Life and Zurich.
Go online
Another cheaper option in Switzerland when it comes to mortgages is to go online, either through an online-only mortgage from a bricks and mortar bank or an online-only financial institution.
So-called ‘neo banks’ have sprung up in recent years, which offer the services of regular banks but do not have any branches or locations.
All account management is done online, which allows them to save money, while the costs of rent and locations are also spared.
EXPLAINED: Which banks are best for foreigners in Switzerland?
Swiss financial agency Moneyland notes that those who opt for online mortgages tend to be savvy and more aware of their rights than others, which is at least in part because these mortgages tend to include less frequent consultation (thereby saving on staff costs).
Online mortgages will usually be offered by larger banks or financial institutions through associate or other companies.
While the source of the funds might be the same - i.e. an online bank connected to a bricks and mortar bank both offering mortgages - they will often use a different name so as to not cannibalise on their main offerings.
Some online mortgage options include eHypothek, Homegate, Hypomat, Migros Bank and several cantonal banks.
Please keep in mind that this was written as a guide only and should not take the place of qualified financial advice.
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As the only country in Europe where more than 50 percent of people rent their home, Switzerland has the lowest home ownership rate on the continent.
This is due to a variety of factors, including strong tenancy laws, culture, cost and a scarcity of land.
There are some however who are keen to buy their own home - and evidence suggests this number is growing.
READ MORE: Why do so many Swiss prefer to rent rather than buy their own home?
While having enough cash is an important starting point, there are also a range of other factors to be taken into consideration.
Here are some tips for mortgages in Switzerland.
Give yourself time - more time than you think you need
Buying a home will be one of the most important and consequential decisions you ever make, so give yourself plenty of time beforehand.
Speak to other people who have bought homes recently and several years ago.
Get to know the relevant terminology for your part of Switzerland so that you know what you are talking about.
For instance, what was a LIBOR mortgage - and what is a SARON mortgage - and how has the latter replaced the former?
A low interest rate is great, but can you pay the mortgage off early. If not, you may end up costing yourself a whole lot more.
Is the interest rate fixed or variable? And if it is variable, what happens when rates rise?
Below are just some general tips to consider, but remember that you can never investigate too much.
Check out the following link for more specifics on the costs of buying a home in Switzerland.
EXPLAINED: The hidden costs of buying a home in Switzerland
Is taking out a mortgage to buy a home in Switzerland a good decision?
Interest rate rises haven’t quelled rising demand for properties, nor has the impact of the pandemic.
Speaking with Swiss news organisation Tamedia, property expert Patrick Schnorf said demand is set to continue.
"We assume that due to immigration, high birth rates and household divisions, demand will remain the same in the near future,” Schnorf said.
"People have saved a lot (during the Covid pandemic), many have a secure income, these are the driving factors,"
In fact, the Covid pandemic has not dampened demand, but has channeled it towards a different type of property.
Larger properties with more rooms and gardens have seen greater demand as a consequence of lockdowns and working from home requirements
"The radius of the real estate search has therefore also extended to the surrounding rural regions," explained Schnorf.
READ MORE: What does the coronavirus mean for Switzerland’s property market?
While lockdowns look to be over and the working from home rules have come to an end, experts argue that some of these changes are more than mere trends and are likely to be permanent.
What types of mortgages are there in Switzerland?
There is a relatively wide array of mortgages on offer in Switzerland, but here are some of the main ones.
Not unique to Switzerland is the fixed-rate mortgage, where you pay an agreed rate on your mortgage over a set period of time. This is the case regardless of interest rate trends.
Also not unique to Switzerland is the variable mortgage, where rates are subject to market fluctuations.
Comparatively unique to Switzerland is the SARON (Swiss Average Rate Overnight) mortgage.
The SARON mortgage replaced the LIBOR mortgage (London Interbank Offered Rate) at the start of 2022.
The interest rates for SARON mortgages are variable and are calculated on the basis of the SARON reference rate.
The SARON reference rate takes into account actual transactions in the Swiss money market (unlike the LIBOR rate which was calculated on the basis of recommendations from a handful of banks) and is therefore believed to be more transparent.
Know and understand Swiss deposit rules
Before you even begin thinking about buying a home, you need to know that higher deposits are required in Switzerland than many other countries.
The minimum deposit in Switzerland is around a fifth (20 percent) of the total purchase cost.
This is much higher than the five percent often seen in English-speaking countries, but it’s much lower than the 40 percent sometimes required in Germany.
While you might have just felt your home ownership dreams disappear with a whoosh, only half of that 20 percent figure should come in cash.
The other half can come out of equity.
It can also come out of your pension fund – although if you’ve only recently arrived in Switzerland, you might not have that much cash stashed in there.
READ MORE: Can foreigners buy property in Switzerland?
Switzerland has low interest rates - but be aware of fluctuations
Swiss interest rates have been low for years, creating an ideal situation for anyone wanting to borrow money to get onto the property ladder.
But just because something has been a certain way for a while doesn’t mean it will stay that way - and even a quarter of a percent increase in interest rates can have significant impacts on the average mortgage.
Inflation has already hit highs in Switzerland - and more appears to be on the way.
READ MORE: How to protect your savings against inflation in Switzerland
In January 2022, several financial institutions announced that mortgage rates were on the rise due to a likely rate increase from Switzerland’s National Bank.
That said, interest rate hikes are not necessarily permanent - but be sure to incorporate scope for rate fluctuations into your budget.
Don't just stick to banks
It might sound counter intuitive, but avoiding banks might help you save on a mortgage.
Insurers often have competitive rates for mortgages that beat out what the banks have to offer.
Generally speaking insurance companies offer fixed term mortgages and interest rates are lower than those offered by the banks, although you may need to commit to a longer term.
To sweeten the deal, insurers will often throw in discounts on other insurances, i.e. life insurance or home and contents.
They will not allow you to use your pension funds as equity, which means you’ll need more cash for a deposit.
Insurance companies also have a range of other rules related to amortisation, loan to value ratios, etc, which are more strictly enforced - so getting a mortgage with an insurer can be more difficult.
Some insurance companies offering mortgages in Switzerland include Allianz Suisse, Axa, Baloise Bank SoBa, Generali, Helvetia, Swiss Life and Zurich.
Go online
Another cheaper option in Switzerland when it comes to mortgages is to go online, either through an online-only mortgage from a bricks and mortar bank or an online-only financial institution.
So-called ‘neo banks’ have sprung up in recent years, which offer the services of regular banks but do not have any branches or locations.
All account management is done online, which allows them to save money, while the costs of rent and locations are also spared.
EXPLAINED: Which banks are best for foreigners in Switzerland?
Swiss financial agency Moneyland notes that those who opt for online mortgages tend to be savvy and more aware of their rights than others, which is at least in part because these mortgages tend to include less frequent consultation (thereby saving on staff costs).
Online mortgages will usually be offered by larger banks or financial institutions through associate or other companies.
While the source of the funds might be the same - i.e. an online bank connected to a bricks and mortar bank both offering mortgages - they will often use a different name so as to not cannibalise on their main offerings.
Some online mortgage options include eHypothek, Homegate, Hypomat, Migros Bank and several cantonal banks.
Please keep in mind that this was written as a guide only and should not take the place of qualified financial advice.
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