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Standard financial plan
General rules
As a general rule, the equity capital required is 20% of the purchase price (sale price plus acquisition costs) and annuities must not exceed one third of your gross income. The final financial plan must be prepared by the mortgage creditor (e.g. bank, insurer) and depends on your personal situation (income, age, etc.) and the financing model (amortization rate, direct or indirect amortization, fixed or variable rate, etc.). Mortgage interest rates are dependent on the financial market and may change in the future. In the current market, you can obtain financing at lower interest rates than in this indicative financial plan below. Most banks and insurers only give you a mortgage if your income is also sufficient assuming an interest rate of 5%.
Example for indication
| Purchase/selling price |
2'450'000 |
| Acquisition costs (transfer charges, notary) | 98'000 |
| Costs for creation of mortgage loan certificate | 39'200 |
| Cost price |
2'587'200 |
| Equity capital to pay, including costs | 627'200 |
| 1st mortgage rank 65 % of the cost price | 1'592'500 |
| 2nd mortgage rank 15 % of the cost price | 367'500 |
| Interest 1st rank 2 % | 31'850 |
| Interest 2nd rank, 3 % | 11'025 |
| Maintenance costs | 24'500 |
| Annual depenses to compare with a rent | 67'375 |
| Monthyl depenses to compare with a rent | 5'615 |
| Amortisation (reduction of the debt) 2 % par year | 39'200 |
| Annuity (must not exceed 1/3 of the annual income) |
106'575 |
| Monthly depenses including amortisation | 8'881 |
If you want to buy a principal home, you will need to calculate the maximum budget first before starting the search.
Total annual income
Calculate your annual income based on your employment contract or the average profit for the last three years if you are self-employed. In this example, the income is CHF 210,000.
The annuity
Divide your annual income by three. The result corresponds to the annuity, which must not exceed one third of the income. The annuity is the total annual amount you will have to spend on housing in the event of a purchase. The annuity includes mortgage interest, mortgage amortization and maintenance expenses.
In this example, the possible annuity in relation to income is CHF 70,000.
Maximum price calculation in relation to the annuity
| Calculation | ||
| 1st mortgage rank 65 % of the selling price (X) | 0.65 | (X*0.65) |
| 2nd mortgage rank 15 % of the selling price (X) | 0.15 | (X*0.15) |
| Equity capital | 0.20 | |
| Interest 1st rank | 0.02 | (X*0.65*0.02) |
| Interest 2nd rank | 0.03 | (X*0.15*0.03) |
| Maintenance costs | 0.01 | (X*0.01) |
| Amortisation | 0.02 | (X*0.65*0.02)(X*0.15*0.02) |
Maximum purchase price in relation to minimum annuity, calculation:
X = ((X * 0.65)*0.02)+(X*0.15)*0.03)+(X**0.01)+(X*((0.65*0.02)+(X*(0.15*0.03))
X = 0.0435X
Example: The annuity calculated on the basis of income is CHF 70,000 (1/3 of the income of CHF 210,000), calculate the purchase price with your annuity, in this example:
X = 70'000 : 0.0435 = 1'690'195.40
Equity capital
Calculate the available equity (bank accounts, securities, etc.). If you wish to finance a part of your home with your assets from the pension fund, ask your fund to calculate the amount available for purchase. You must have at least 10% of equity capital that you contribute yourself. Third pillar funds can also be withdrawn or pledged. I do not go into more detail in this article.
Conclusion
Since most potential buyers have the 20% equity, but not enough income, I suggest that you first calculate the possible purchase price in relation to the annuity. You can do this calculation with different mortgage rates to see if you can finance your home without any problems if mortgage rates increase.I hope I have explained these calculations well to you, or you can already go to your banker or insurer who will do the calculation for you. You can also find simulations of financial plans on the websites of Swiss banks.
© Written by Esther Lauber, Property Fiduciary with Federal Diploma of Higher Vocational Education and Training, real estate broker
Translated from French into English with www.DeepL.com/Translator
