Glossary

1st rank

The part of the mortgage loan that does not need to be paid off. A mortgage loan is divided into two parts, the 1st rank and the 2nd rank. For a primary residence and for a conventional property, the 1st rank corresponds to 65% of the current value of the property. Lenders do not ask for this part of the loan to be paid off.

2nd rank

This is the part of the mortgage loan that has to be paid off. A mortgage loan is divided into two parts, the 1st rank and the 2nd rank. The 2nd rank corresponds to the part of the loan which is to be paid off. For a primary residence and for a conventional property, the 2nd rank corresponds to the difference between 65% of the value of the property and the amount of the loan, and is generally 15% of the value of the property.

Affordability ratio

The ratio of your theoretical financial expenses and your income that can be considered is also referred to as your “affordability ratio” by lenders. Lenders consistently have different criteria for calculating this ratio. This ratio allows lenders to determine whether they take the view that you will be able to afford the mortgage you are applying for, especially if interest rates were to rise sharply. It is known to be the case that interest rates are very low at present. To prevent the borrower experiencing extreme difficulties in the event of a sharp rise in interest rates, however, the banks are required to make allowances for a possible rise in interest rates. Therefore, the theoretical interest rate set by FINMA is often calculated at 5%. This is the rate at which you should take the amortization as well as the theoretical maintenance costs into account.

Amortization

The repayment of part of the mortgage loan according to a regular schedule.

Borrowing capacity

The maximum amount that the borrower is able to borrow. The borrowing capacity corresponds to the maximum amount that you are able to borrow. It depends on your income as well as your personal and professional situation.

Buying capacity

The maximum value of a property that the borrower is able to buy. The buying capacity depends on the personal funds which are to be invested in the project as well as the borrowing capacity of the borrower.

Commercial property

Property which is intended for office or commercial use

Direct amortization

Amortization which takes place on the basis of regular payments to the lender. In the case of direct amortization, the borrower pays a sum to his or her lender on a regular basis. Both the amount of debt and the mortgage interest decrease. However, there is no creation of any equity capital, and the taxes relating to the rental value are counterbalanced by the waiver of interest to an increasingly lesser degree.

FINMA

The Swiss Federal Financial Market Supervisory Authority. FINMA sets the rules that banks and financial intermediaries are required to follow. In particular, it sets the minimum conditions which must be fulfilled before you can secure a loan. Interest rates are very low at present, but if your finances aren’t sufficiently strong and the rates rise, you could find yourself in serious financial difficulty.

Fintech

An innovative start-up firm which harnesses technology to rethink a financing system.

Indirect amortization

Amortization which takes place on the basis of regular payments to a personal pension account. In the case of indirect amortization, the amount of debt remains the same, as the payments are made into a 3rd pillar personal pension account or a life insurance policy. Although this means the monthly costs remain at the same level, the tax deductions don’t, and both the payments into a 3rd pillar and the income from them are deductible.

Investment property

A property which is acquired for rental purposes

Lender rules

A list of rules that lenders use to decide whether to grant credit.

Loan-to-value ratio

Lenders also refer to the ratio of the mortgage loan to the purchase price (or value of the home) as the “loan-to-value ratio”. Lenders consistently have different criteria for the loan-to-value ratios. The loan-to-value ratio restricts the maximum amount that a borrower is able to secure in relation to the type of property. A typical loan-to-value ratio is often 80% of the value of the home. Some institutions have stricter criteria, however, and are not able to exceed a loan-to-value ratio of 65% of the value of the home.

Maintenance costs

Maintenance costs and the renovation of a property. Maintenance costs are everything that the owner is likely to spend on the upkeep of their property. In mortgage-related simulations, they are usually estimated to total 1% of the value of the property per year. Some lenders take them into account in their calculations, others do not.

Mortgage broker

An expert and comparator who helps his or her clients to secure the best financing available on the market. In simple terms, they are a comparator and, in particular, an expert on real estate loans. The mortgage broker is in contact with the differing lenders in the market, and uses his or her experience to help his or her clients find the best financing terms for their real estate projects and the best mortgage rates in particular.

Mortgage certificate

A document confirming your ability to finance a property. Vendors like to be certain about the profiles of prospective buyers. The mortgage certificate is a beneficial thing to have, as it proves your solvency, as certified by a financial institution or a mortgage broker.

Mortgage note

A document attesting to the amount of the mortgage. The mortgage note is a document which is drawn up by a notary. This “value certificate” indicates the amount that the creditor is able to claim from the debtor as well as the property that provides the guarantee.

Notary fees

Fees paid in addition to the purchase price. They include the conveyancing fees, registration in the land registry and the expenses payable to the notary. It would be better to refer to these as “acquisition costs”, but due to the misuse of language they are more often referred to as notary fees. Such fees depend on the purchase price, the mortgage loan and the type of use, and are calculated by the cantons, which have their own rules. They can amount to between 3% and 5% of the purchase price, and generally have to be covered by the buyer’s personal funds.

Personal funds

All the capital which is at the disposal of the borrower. Personal funds can be of several different kinds: bank savings, a gift, the 2nd pillar, the 3rd pillar... They are what you are able to or want to contribute to your real estate project.

Theoretical expenses

Expenses that are calculated on a theoretical basis for the calculation of the affordability ratio. The theoretical expenses are calculated starting from an interest rate of 5% (this varies according to the lender), a theoretical amortization of 15 years and theoretical expenses of 1% of the value of your property.