A large contribution of equity makes it possible to obtain a rate cut, but there is no advantage in this contribution being too high. On the other hand, changing banks often results in an additional rate reduction. With the advice of HypoPlus, Comparis’ mortgage service, make sure you get the best rate after negotiations.
External financing ratio: no more investing too much equity
Mortgage institutions grant lower interest rate to people benefiting from a good repayment capacity. We are talking about an above-average repayment capacity for mortgage takers whose contribution in equity exceeds the required minimum, i.e. 20% of the value of the property.
External funding ratio: ideally two-thirds maximum
An analysis carried out by HypoPlus, the mortgage specialist of the Comparis group, however, indicates that mortgage institutions hardly grant additional rate discounts when the external financing ratio drops below 65%. Bringing in as much equity as possible when buying real estate is therefore hardly beneficial.
It is still preferable that the external financing ratio does not exceed two-thirds of the real estate value. In this case, the fall in the mortgage rate can reach 25 basis points (one basis point equals 0.01%).
The first mortgage is decisive
If, above a certain threshold, the contribution of additional own funds no longer necessarily leads to a reduction in rates, it is because so-called “first rank” mortgages are associated with a high level of security. For these, the external financing ratio is limited to 65%. If the property is to be the subject of a judicial sale, the sale price is usually sufficient to cover the first mortgage.
In other words, an even lower external financing ratio provides little additional security for mortgage institutions, which therefore grant almost no additional reduction in this case.
Fortune: changing bank, a strategy that often pays off
HypoPlus analysis also shows that by changing bank for a service provider cheaper, you can get an additional reduction in the interest rate on average between 5 and 10 basis points.
In addition, by transferring your salary account and additional capital of at least approximately 10% of the mortgage amount to the new mortgage institution, you further increase your chances of benefiting from the maximum discount. The existence of additional capital signals to the institution that you did not need to reach the limit of the external financing ratio, which reduces the credit risk for it.
Debt ratio: minimal influence on the mortgage rate
For the acquisition of real estate, it is considered that a debt ratio is reasonable if the monthly payments do not represent more than one-third of the income of the creditor household. Another point highlighted by Hypoplus’ analysis: the debt ratio only slightly influences the mortgage rate. An excellent debt ratio of around 18% (the usual rate being 33%) only reduces the indicative rate by 5 basis points at best.
Calculate your debt ratio
You can save more by choosing to take out your mortgage contract with an insurance company: taking out life insurance with the institution granting the mortgage allows you to obtain a rate reduction of 3 basis points on average . And the rate discounts are cumulative.
Example calculation: reduce your interest
Established on the basis of an indicative rate of 1.16% for the fixed mortgage over 10 years (status as of July 12, 2021) and a mortgage contracted for the acquisition of a property at 1,000,000 francs.
| Interest rate [en pourcent] | Costs / year [valore assoluto in CHF] | |
|---|---|---|
| Coût / an [chiffres absolus en CHF] | 1,16 | 9’280 |
| After reduction of the external financing ratio to 65% | 0,91 | 6’067 |
| Transfer of the banking relationship, including the remaining assets, to the lending institution | 0,81 | 5’400 |
| Lower-than-average debt ratio | 0,76 | 5’067 |
| Total reduction / year | 0,40 | 4’213 |
| Total reduction / contract duration | 42’130 |
Beware of excessively heavy depreciation
One last tip: avoid depreciation too heavy. Otherwise, you run the risk of not having the means to maintain your usual standard of living once you retire. In addition, during retirement as well as during the few years preceding it, it is often difficult to increase your mortgage.
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