Some useful tips on how to take out a mortgage and its optimum durability and sustainability.
The ability to enter into a mortgage on the property you want to buy as a real estate investment remains one of the most common solutions to acquiring the necessary resources to cover the missing capital portion for the desired property’s bare value.
As mentioned in the chapter on owner’s equity, the Swiss banking system is concerned with covering up to a maximum of 80% of the property value through funding, keeping in mind of course the profiles that the applicant must meet to guarantee this mortgage.
The simplest, of course, is to have an income that over the life of the mortgage carries out the twofold task of supporting the needs of the individual and his family and at the same time covering the periodic instalment value. Swiss banks regulate their creditworthiness threshold by always suggesting an expense is planned that does not exceed 30% of your monthly budget.
Added to this simple rule is the consideration of the data of the individual requesting funding. Normally, Swiss banks grant loans with more frequent amortizations and of a shorter duration for people applying for the loan at a later age (from age 60).
But what are the types of mortgage, how do they work and how should you choose according to your situation?
First of all, some common sense advice that may come in handy in other areas is to contact multiple lenders and receive different proposals, comparing them with each other and, after a careful assessment, to opt for the one that seems to be the best for your overall personal and financial situation at all levels.
Here is a quick summary to distinguish between the different mortgages available and their possible amortization.
Various mortgage types
There are basically four types of mortgages to choose from to reach the necessary amount for a property investment. The main features revolve around the interest rate that they are subject to and the amortization schedule and complete discharge that they provide.
Mortgage in which the interest rate is regularly corrected based on changes in the cost of money. Its further characteristic is not having a duration fixed in advance.
Financing instrument with an interest rate agreed at the time of borrowing, based on the current level of interest rates at the time and fixed throughout its duration.
Libor rate mortgage (flex rollover)
A kind of mortgage that follows the Libor rate (London Interbank Offered Rate) with quarterly or half-yearly corrections related to this index.
Mortgage with mixed characteristics strongly conditioned by the Bank’s own mortgage policies and including features common to all the instruments mentioned above.
These four templates are your aces in the hole for obtaining your dream property and securing a bright future with a sure, credible investment full of opportunities.
The current situation regarding the mortgage choice
The choice of the most appropriate funding instrument for you must be based on the right mix of considerations, looking at both the current situation and future market trend forecasts, with an eye on the progress of your work situation or general sustainability during the mortgage period.
In recent years, the volatility of foreign financial centres has not eliminated the solid reality of the Swiss banking system; however, interest rates are at what may be considered a particularly quiet and calm period. The decrease in the cost of money is indeed the result of policies to stimulate currency circulation to encourage investment and consumption. This particular juncture gives buyers today the ability to enter into fixed-rate mortgages at particularly advantageous rates that keep you safe from any future increases in borrowing costs.
Really low interest rates, however, are also an attractive condition for those not willing to bet on level rates over the coming years and who want to try a variable rate mortgage, perhaps short-term. This ensures that even a possible change in the cost of money will not overly affect the rate level and does not constitute increased expenditure compared with a fixed rate instrument.
The concept of direct and indirect amortization
Amortization is the technical term indicating the debt repayment process. There are two types with very distinctive characteristics.
This is when you agree with a lender to pay an instalment on a regular basis, with an interest rate set by the mortgage type. This is the most common form for discharge of your debt and a progressive way to see the mortgage reduced gradually.
Less common than the first, indirect repayment is tied to real estate investments directly used by the buyer and allows you to pay the amount of your debt in one solution taking into account the interests over time. A pledge or guarantee fund is required, belonging to the class of the third pillar, whether bank accounts or insurance policies, and have the advantage of not affecting the level of retirement capital and related interest income, but at the same time maintaining the debt and its interest payable. There is also the advantage that this plan may result in a taxation level with higher deductions compared to a more common indirect amortization.
In conclusion: whatever your choice, remember once again that planning is the key to success, so you can realize your real estate dreams in a solid, profitable way for you and your loved ones.