Financing your own home

At last – the right time and the right property have come along, and now you can fulfil your dream of home ownership. But before you can take possession of your own four walls, you need to sort out the financing. If you are well informed, you will make the right decisions. So, you should address this issue at an early stage to ensure that your new home is securely financed at a reasonable price.

If you want to buy a house or an apartment, you first need the necessary capital. You will have to provide your own money and additionally take out one or more mortgages. Be realistic and calculate what price you can afford before arranging any viewing appointments. And take the time to make a list of what features are important to you in your future home.

What kind of home do you dream of?


Are you looking for an older house that you can renovate yourself, or a modern new-build property? Does your home need to be in the city centre or in a remote rural location? Would you prefer an apartment with a balcony or a terraced house with a garden? You should think about these questions before you start to view potential properties. At the same time, it makes sense to consider how long you plan to live in your dream property and how you picture your retirement.


Right from the start, you should take a pragmatic approach to realising your dream of home ownership. These are the first two steps:


1. First, clarify any requirements you may have in relation to your own home.

  • How many people will be living there?
  • How many rooms or how much space do you need?
  • Where should it be located?
  • What is the maximum time you are prepared to spend travelling to work?
  • When it comes to the floor plan, what is important?
  • Would you like a garden or a balcony?
  • You can find more ideas in our “Initial Needs Assessment” checklist.


2. Then clarify the maximum amount that you can pay for your home. To answer this question, you need to know a few facts about your financial situation.




The big question: how much can you afford to pay?


You should ask yourself this question before you start to view any properties. The following information will soon help you find the answer. Every financing arrangement has two elements – the assets that you supply yourself and the borrowed capital.

  • Own assets: This is the money you will contribute yourself, either by drawing cash from a bank account, withdrawing capital from your pension fund, selling securities or taking an advance on an inheritance. If you already own the building land or you are involved yourself in the construction of the property, for example, this is also treated as a contribution of your own assets. At least 20% of the purchase price must be covered by assets you supply.
  • Borrowed capital: Usually, the majority of the purchase price is financed using borrowed capital. You borrow it as a mortgage loan from a bank, an insurance company or another financial institution. As a general rule, this borrowed capital is divided into a first mortgage (max. 65% of the purchase price) and a second mortgage (max. 15% of the purchase price). You will normally pay a higher interest rate on the second mortgage. The amount of this second mortgage must be amortised, or repaid, within 15 years or by the time you retire. If you conclude a single mortgage for all of the borrowed capital you need, you will have to repay any portion of the loan exceeding 65% of the purchase price by this same time.



How to calculate affordability

As a rule of thumb, you should not spend more than a third of your regular net income on paying for the place you live. You can find this amount, for example, on your annual salary statement under “Nettolohn II” (Net Salary II). This applies to tenants as well as homeowners. If you want to take out a mortgage with a bank or an insurance company, an affordability calculation will be carried out to compare your income with the expected housing costs. When you own a home, these costs include:

  • Mortgage interest
  • Amortisation of a second mortgage
  • Incidental costs (1% of the property's value)


Good to know: when calculating mortgage interest, providers assume a future average interest rate, rather than the current rate, which may potentially be very low. Thus, the bank or insurance company can assume that your mortgage will continue to be affordable even if interest rates rise.



How to draw assets from your pension fund and pillar 3a


Pillar 3a and your pension fund are generally used to save for your retirement. You can only withdraw assets from these retirement provision facilities in specially defined cases. The purchase of residential property is one such case – provided you live in the property yourself and do not rent it out. You can use money from pillars 2 and 3 to increase the amount of your own assets without having to use up all your savings. The higher the amount of the assets you contribute, the lower your mortgage interest rate will be. There are two ways in which you can use your pillar 3a or pension fund in financing residential property: as an advance withdrawal or as a pledge.



Advance withdrawal from the pension fund

You can draw savings from your pension fund to finance the purchase of your own home. It is important to note that you must finance at least 10% of the purchase price with your own free assets, which means this share may not come from your occupational retirement provision.


These are the rules for making an advance withdrawal:

  • An advance withdrawal from the pension fund is only possible every 5 years.
  • The minimum amount is normally CHF 20,000.
  • There is a separate tax rate that is only for capital payment taxes. It is independent of other income and amounts to only a fraction of income tax. Payments from the pension fund and pillar 3 can be aggregated by the tax office. The taxes incurred cannot be paid from the advance withdrawal of these funds and must therefore be financed in the budget from your other funds.
  • The pension certificate issued by your pension fund states the minimum and maximum amounts that you may withdraw.
  • The withdrawal request must be signed by both spouses.
  • The advance withdrawal is entered in the land register.
  • When selling your home, you must repay this amount to the pension fund.

An advance withdrawal from the pension fund means that you will receive a lower pension under pillar 2 when you retire. Some pension providers also reduce the benefits on disability and death after an advance withdrawal. You should analyse your situation in detail and decide whether it makes sense to fill the gap left in your pension fund.


Please note: An advance withdrawal from the pension fund can have a big disadvantage. If you have to sell your home for an amount which is less than the original purchase price, you will lose part of your retirement provision. If you can afford to finance the purchase of residential property without drawing money from your pension fund, then you should avoid making an advance withdrawal.



Pledging pension fund assets

If you pledge money from your pension fund, the bank or insurance company will treat this amount as collateral only. The funds will remain part of your occupational retirement provision. You will receive a loan for this pledge that will allow you to take out a mortgage for up to 90 percent of the purchase price. The interest rate is similar to the first mortgage.


These are the advantages of pledging:

  • You will continue to enjoy the full benefits of your pension fund.
  • The full amount of the capital in the pension fund will continue to bear interest.
  • As your mortgage may be higher, you can offset more debt against your taxes.


Please note: Because you can take out a larger mortgage, your mortgage interest will also be higher. Normally, you must also repay this loan by the time you retire.



As a general rule, pledging is the better solution

If you need to use one of these two options, pledging your pension fund assets is generally the better solution, provided that you earn enough to pay the higher mortgage interest. In addition, you will need the consent of the bank or the insurance company if you want to draw a part of your assets from the pension fund after pledging, such as if you decide to become self-employed.



Own assets: withdrawing money from pillar 3a

You have the same options with the money from your pillar 3a as with the capital from your pension fund. You can pledge it as collateral for a loan, or you can have a part of your savings paid out to increase your own assets. There is one crucial difference here: funds from pillar 3a are treated as your “own” money, so you can count them towards the 10% of the purchase price that you must cover from your own assets. Again, the same rules on capital payment tax apply as for the withdrawal of pension fund assets.




Cutting through the mortgage jungle: which mortgage is right for you?


No mortgage, no home. The mortgage is the most important element of home finance. The choice of mortgage providers on the Swiss market is huge, but you will generally find the same three options available everywhere:

  • Variable-rate mortgage: The interest rate on this type of mortgage is constantly updated to reflect the latest market conditions. It has no fixed term. Usually a three- to six-month notice period applies for terminating a variable-rate mortgage or converting it to a different type.
  • Fixed-rate mortgage: Here the interest rate is fixed on conclusion of the mortgage agreement, and it is valid for the entire term, which is usually between one and ten years. Certain banks or insurance companies also offer terms of 25 years or more. If you want to get out of a fixed-rate mortgage, you may have to pay high exit fees.
  • SARON mortgage (formerly LIBOR mortgage): The LIBOR (London Interbank Offered Rate) is the interest rate at which banks lend money to each other. There are no actual transactions behind the LIBOR, but merely the agreements that banks make among themselves. The SARON (Swiss Average Rate Overnight), however, is based on actual transactions and is therefore transparent. Looking at the LIBOR and SARON interest rates, it is evident that they have been virtually the same in the past.


At Generali, you can choose between variable-rate and fixed-rate mortgages with fair interest rates and flexible conditions. It is important to us that you can choose as freely as possible. With us, you benefit from the following:

  • You can voluntarily repay up to CHF 20,000 per year without incurring any costs.
  • If your mortgages expire at different times, you can change the term end dates.
  • We fix favourable interest rates for you one year in advance, with no forward surcharge.



Five steps to finding the right mortage

  • Offer requests, round 1: Send your file with your financing request to your own bank, your insurance company, and two or three other providers. The file must contain all the information about the property and your financial situation. Request offers for variable-rate, fixed-rate and Libor mortgages, and set a deadline by which you expect to receive the offers. For Generali mortgage offers contact: 0800 881 882 /
  • Compare offers: Get an overview of the offers and compare the different providers by transferring all the figures into an Excel spreadsheet. Make sure that you only compare offers with identical starting points, and identify the most reasonably priced offer.
  • Offer requests, round 2: Send a copy of the cheapest offer from the first round to all providers. Remove any details about the provider that sent the offer to ensure it remains anonymous. Ask for a second, improved offer, and set another deadline.
  • Personal discussions: have a personal conversation with your current mortgage company and two other providers that you like. You can use this opportunity to clarify any outstanding questions and ask for better terms and conditions. Be clear that you are still in discussion with other providers. Healthy competition will encourage each provider to offer a better deal.
  • Conclude the contract: Once you have decided on a provider, let them know your decision. They will then prepare the contract. Check carefully to ensure that all the points you agreed are included in the contract. Before you turn down the other providers, wait until you have received written confirmation from your chosen provider and until all the details are correct. You can also wait until you have the irrevocable promise of payment before notifying the other providers.