Criteria for a mortgage

Only a very few property buyers can finance a house or an apartment entirely from their capital resources. Home buyers usually need a loan, normally known as a mortgage in the context of property. To take out a mortgage you usually have to fulfil two criteria, from the perspective of the financial institutions: loan-to-value ratio and viability.

Loan-to-value ratio: The money really has to be there

Loan-to-value describes the ratio between mortgage amount and property value. In that context, financial institutions grant loans of up to 80 per cent of the property value. That means that a buyer has to raise at least 20 per cent equity capital. Of this 20 per cent equity capital, half must be available in the form of “hard equity” and must not come from pension assets drawn prematurely. That means this money has to be actually available and to be put aside by the buyers.

Viability: Financially viable even in the long term

Once the buyer has saved up enough equity capital, the financial institutions check whether the property is financially viable in the long term. Viability requirements are fulfilled when no more than a third of gross household income has to be spent on the ongoing costs of the property. In the case of a mortgage from Helvetia, ongoing costs include 7% interest costs. These are made up of the following factors: Maintenance costs amount to 1 per cent of the property value; in addition there is another 1 per cent for amortisation and an imputed interest rate of 5 per cent. In most cases, the second mortgage has to be amortised within a certain period.

Obtaining comparative quotes

In addition to these criteria, the valuation of the property and the calculation of income can also vary greatly from provider to provider. For that reason it is advisable for mortgage borrowers to obtain between three and five quotes from different providers. In order to be able to make relevant comparisons, they should not only obtain quotes from banks but also from insurance companies such as Helvetia, and pension funds.