2. Financing Your Apartment §

Buying an apartment in Switzerland almost always involves taking out a mortgage. Mortgages here work differently from many other countries: you rarely borrow 100% of the price, and you usually don’t pay it back entirely before retirement. Banks and regulators have set up a system that aims to prevent people from taking on more debt than they can handle — which means the approval process is detailed, sometimes slow, and very numbers-driven.

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2.1 Swiss Mortgage System Overview §

A mortgage is a loan from the bank to help you pay for the apartment. The bank lends you part of the price, and you cover the rest with your own money (your “down payment” or equity).

The bank never lends you the whole purchase price. For a primary home, the maximum loan is normally 80% of the price — the remaining 20% has to come from your own savings, investments, or pension fund.

Example:
If your apartment costs CHF 1,000,000:

• Bank will lend: CHF 800,000
• You must bring: CHF 200,000 (equity)

This 80% limit is what people mean when they say “loan-to-value ratio” (LTV) — it’s simply the percentage of the property’s value that the bank is willing to lend.

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2.2 First vs. Second Mortgage §

Swiss mortgages are usually split into two “layers”:

1. First mortgage – up to 65% of the property’s value

   • You can keep this for decades, sometimes for life.
   • There’s no legal obligation to repay it fully while you live in the property. Once you’ve amortized to 65% of the property’s value, you may keep the first mortgage indefinitely—even into retirement. Many homeowners maintain mortgage debt long-term for tax and liquidity reasons.

2. Second mortgage – from 65% up to the maximum 80%

   • This part must be paid back within 15 years (or by the time you retire).
   • This repayment is called amortization.

Example:
For that CHF 1,000,000 apartment:

• First mortgage: CHF 650,000 (kept long-term)
• Second mortgage: CHF 150,000 (paid back over 15 years)

The repayment of the second mortgage is usually done in equal yearly amounts.

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2.3 Down Payment Rules §

The bank will expect you to pay at least 20% of the price yourself. There’s also a rule about where this money comes from:

• At least 10% must be from cash or investments — not from your pension fund.
• The other 10% can come from your pension fund if you plan to live in the apartment as your main home.

Acceptable sources of equity include:

• Savings accounts
• Investments (shares, bonds, funds)
• Gifts from family (documented)
• Pension withdrawals (see Section 2.5: Using Your Pension Funds below)

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2.4 Affordability Calculation §

Before lending you money, the bank will check that you can afford the apartment even if interest rates rise sharply. This is called the affordability test.

Here’s how it works:

The bank always uses a theoretical interest rate of around 5% as a conservative assumption, and then adds:

• The annual amount you’d need to repay your second mortgage (amortization)
• An allowance for upkeep and running costs, usually 1% of the property value

The total of these three numbers must be less than 33% of your gross annual income (one-third rule).
This rule exists to ensure that even if rates rise sharply, you should still be able to pay.

Example:
Price: CHF 1,000,000 → Mortgage: CHF 800,000

1. Interest (at 5%): CHF 40,000/year
2. Amortization: CHF 10,000/year
3. Upkeep: CHF 10,000/year

Total: CHF 60,000/year → Needs income of at least CHF 180,000/year to pass.

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2.5 Using Your Pension Funds §

If you live in Switzerland, you may be able to use part of your occupational pension (Pillar 2) or private pension savings (Pillar 3a) to help with your purchase. This is only possible for your primary residence — not a holiday home or rental property.

There are two ways to use pension money:

• Withdraw it: You take the money out now to use as equity. This reduces your future retirement savings.
• Pledge it: You promise the pension fund money to the bank as extra security. You don’t take it out, but the bank knows it can claim it if needed.

Withdrawals from pension funds are taxed at a reduced, one-time rate. Pledging keeps your pension intact but may mean a bigger loan (and higher interest costs).

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2.6 Amortization Methods §

There are two ways to repay your second mortgage:

• Direct amortization: You make regular payments that reduce the mortgage principal. Over time, your debt goes down and interest payments shrink.
• Indirect amortization: Instead of paying the bank directly, you pay into a pledged Pillar 3a account or life insurance policy. At the end of the term, that account is used to repay the mortgage. This method keeps your mortgage debt (and interest deduction) higher for longer.

Indirect amortization can be financially beneficial if the investment returns from your pledged 3a account exceed the interest rate on your second mortgage. In that case, the money you set aside to repay the loan is not just locked—it’s also growing. Over time, this can reduce the true cost of borrowing compared to paying the mortgage down directly.

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2.7 Interest Models: Fixed and SARON §

Mortgages in Switzerland can be fixed-rate or SARON-based. You can even split your loan into parts with different types.

• Fixed rate: Your interest rate stays the same for the whole term (2–10 years is common).

  • Good for budgeting and if you think rates might rise.
  • Early repayment during the term usually triggers breakage penalties, which can be substantial.
  • Some banks offer “forward” fixed mortgages, allowing you to lock in a rate up to 12–24 months before it starts.

• SARON (Swiss Average Rate Overnight):
  A floating-rate mortgage where your interest rate is based on the average overnight rate set in the Swiss money market^[1]

  • Adjustments typically happen every 1 month or every 3 months, depending on the product.
  • SARON flex: The SARON component moves with the market at each reset, plus fixed bank margin.
  • SARON fixed: The SARON component is set for each agreed period (e.g., quarterly), giving you more predictability within that period.
  • Often cheaper than fixed rates in a low-rate environment, but your payments can increase quickly if the SNB raises rates.

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2.8 How payments are structured for off-plan apartments §

For new projects, mortgage payments are sometimes staged to match construction milestones. You don’t draw the full loan immediately — instead, the bank releases funds as the developer completes each stage (e.g., foundation, structure, interior works).

Because of this:

• You may only start paying interest on the amounts actually drawn.
• Many buyers arrange the mortgage early but lock in the fixed rate closer to completion to avoid paying for unused funds.
• SARON-based loans can work well during the construction period, switching to fixed when the final tranche is drawn.

Canton differences:

• In many cantons (e.g., Vaud, Valais, Ticino), staged payments are the norm, and the exact percentages at each milestone are defined in the sales contract.
• In Zurich and some other German-speaking cantons — particularly for large institutional or pension fund–backed developments — the full purchase price is often due only at handover. These developers finance construction themselves and transfer ownership only once the building is ready for occupancy.
• Smaller private projects in Zurich may still use staged payments, but they are less common than in French- or Italian-speaking regions.

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2.9 Tax Implications of Owning Property §

Owning property has specific tax consequences in Switzerland, and these vary by canton and commune. The main points are:

• Imputed rent (Eigenmietwert / valeur locative)^[2]:
  For tax purposes, a theoretical rental income is added to your taxable income, even though you are living in the property yourself^[3]:

  • This is usually 60–70% of the market rental value and is determined by the tax authority.
  • Example: If your apartment could rent for CHF 3,000/month, the imputed rent might be CHF 21,600/year.
  • This increases your taxable income and can push you into a higher bracket.

• Mortgage interest deduction:
  You can deduct all mortgage interest from your taxable income. This often offsets much or all of the imputed rent for highly leveraged owners.

• Maintenance cost deduction:
  You can deduct either actual maintenance expenses (with receipts) or a lump sum (often 10–20% of imputed rent) depending on cantonal rules. If the planned legal change takes place, most deductions for owner-occupied homes — including for maintenance and energy-efficient renovations — will be removed.

• Wealth tax:
  Switzerland levies an annual wealth tax on your net assets, including property.

  • The taxable value is often lower than the purchase price, based on official property valuations (which can be 60–80% of market value).
  • You can subtract your mortgage debt from this value.
  • Wealth tax rates are typically between 0.1% and 1%, depending on the canton and total net worth.

Example calculation (Zurich canton, simplified):
Market value: CHF 1,200,000 → official tax value: CHF 900,000
Mortgage: CHF 800,000 → net taxable wealth: CHF 100,000
Wealth tax at 0.3% = CHF 300/year.

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2.10 Special Rules for Foreign Buyers and Holiday Homes §

If you are not a Swiss citizen or resident, the rules are stricter:

• Maximum loan is often 60–65% of the purchase price.
• You usually need to show higher income or assets.
• Pension funds cannot be used for foreign-buyer purchases.
• Holiday homes can only be bought in approved tourist areas and are subject to size and resale limits (Lex Koller and Lex Weber laws).

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2.11 Bridge Loans §

If you’d like to buy a new apartment but don’t have the cash for a new down payment yet, you may be able to use a bridge loan. This short-term financing helps cover your equity portion until you sell your current property. It’s often used for off-plan purchases, where the payment deadlines come before your existing home is sold.

A bridge loan (Zwischenfinanzierung / Financement relais) is a short-term loan provided by your bank to cover the equity you will later receive from the sale of your existing home.

Example: §

You’ve agreed to buy a new apartment for CHF 1,000,000.
You expect to sell your current home for CHF 700,000, but the sale hasn’t completed yet.
To proceed with the purchase, the bank grants a bridge loan of CHF 200,000 for 6 months.

Amount	Note
CHF 800,000	Main mortgage
CHF 200,000	Bridge loan (temporary equity funding)
CHF 1,000,000	Total apartment purchase

The bridge loan is typically:

• Short-term (6–12 months)
• Secured by the new or existing property
• Repaid as soon as your current property sale completes
• Interest-bearing (often at a slightly higher rate than a regular mortgage)

Additional information:

• UBS: Moving to a new home: should you buy or sell first?
• Raiffeisen: Haus verkaufen und neues kaufen

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2.12 Green Mortgages for Energy-Efficient Homes §

Some Swiss lenders offer preferential mortgage rates or bonuses for energy-efficient buildings, especially in new construction.

These “green mortgages” often apply to apartments that are:

• Minergie certified
• New builds (e.g., Migros Bank qualifies all projects from 2018)
• Achieve a GEAK A or B rating (cantonal energy certificate)

Typical benefits: §

• Interest discounts of 0.10% to 0.25%
• Extra borrowing margin for sustainable improvements
• Potential for lower equity requirements

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1. SNB: Current Interest Exchange Rates — https://www.snb.ch/en/the-snb/mandates-goals/statistics/statistics-pub/current_interest_exchange_rates#t00 ↩︎

2. In December 2024, the Federal Assembly voted to abolish imputed rental value taxation for main and secondary residences and to remove most related deductions. The final decision will be made by voters in a referendum on 28 September 2025, with possible implementation in 2026 or 2027. ↩︎

3. UBS: How imputed rental value is taxed — www.ubs.com/ch/en/services/guide/mortgages-and-financing/articles/how-does-the-imputed-rental-value-work.html ↩︎