Requirements for future property owners
Obviously, anyone who wants to build a house or buy a condominium needs money. In addition, sufficient equity capital must be available, so that around 20% of the purchase price can be assumed. This is exactly the first problem, because the bank’s valuation does not have to match the purchase price of the property. This means: the demand for real estate is high, the level of interest is low. The price has gone up enormously recently, with many vendors wanting to sell their buildings at exorbitant prices. The bank, on the other hand, sees this in the long term and would like to guarantee the mortgage loan for the long term. He will rate the item separately and sometimes comes to different values than the seller. The resulting differences between the purchase price and the bank’s determined loan value must be covered by the buyer’s own funds. However, these are often not taken into account in planning.
An example: The property will cost 800,000 CHF and equity capital of 200,000 CHF will be available. In order to calculate the affordability of the property, the purchase price, equity and income play an important role. Accessibility is calculated using notional interest rates significantly higher than the normal mortgage rate. They are around five percent, although individual banks differ slightly on this point. The reason for this high value is very simple: if interest rates rise again, the loan is still guaranteed because it was calculated from the outset on the basis of the least favorable interest rate. The bank now finances a maximum of 80% of the purchase price and divides the amount between two mortgages. The former amounts to over 66 percent of the total, the latter to a maximum of 14 percent. The second mortgage must be repaid within 15 years, indicating the latest date of entry into retirement age.
In addition, ancillary costs and costs incurred for the maintenance of the property must be included. The bank will assume approximately 1% of the purchase price.
It is now assumed that the monthly burden of interest, depreciation and ancillary costs should not exceed one third of the borrower’s gross income. In the example above, he would have to earn around 10,700 francs a month to be able to make all the payments if the notional interest rate of five percent is calculated. This shows that a mistake made by many willing borrowers is to underestimate the monthly burden. The demands on the borrowers are high!
Avoid typical mistakes
For some people, a home or condo is just a way of life. Such a property is usually associated with emotions, and many people literally fall in love with a home that they absolutely have to buy. But one of the worst mistakes is giving in to that infatuation and buying a house you can’t afford. The threat of over-indebtedness quickly kills love!
Another mistake is not to provide. A mortgage is taken out for a very long period of time and it is almost certain that interest rates will go up at some point. Anyone who has received the loan should therefore always make sure to set up periodic provisions to be able to absorb any increases in interest rates. So you can look to the future more calmly!
To obtain the necessary equity, another mistake is often made: the money is withdrawn from the pension fund, which consequently offers lower benefits. Not really a problem, but sooner or later it must be possible to fill the gaps that have been created. Otherwise, the money would have been invested in the dream home now, but the money would be lost later when you collect your pension. And then maybe the sale of your home is threatened because it has simply become inaccessible.
Conclusion: the biggest mistakes are in funding
The worst mistakes a builder or buyer can make is planning their financing. This is usually approached too rigidly, so that the required equity is not available. Or the credit burden of up to one third of gross income is not good, more money is needed for the mortgage. This in turn leads to frustration and, at worst, insolvency for all other payment obligations.
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