If you are reading this article, it means that you are actively searching to buy real estate in Switzerland or are starting to think of buying one. This is why I am writing down my personal experience and hoping to provide you with more information and insights on finding the best real estate mortgage rate to save you money and time.

1. Why I decided to buy a home instead of renting

Before I moved to Switzerland, I rented for 11 years while living and working in different countries. Meanwhile, my husband was also renting, even before we moved in together after getting married; one of us was paying rent in Zurich, and the other was paying rent in Singapore. The rent was no joke in two of the most expensive cities in the world.

But when I moved to Switzerland, I was not studying too much about the real estate market here as I heard 58% of Swiss people rent. So there must be a good choice if so many people rent. My husband was not thinking of buying as well.

Only after 5 years of living in Switzerland we moved to our own home, and shortly before, we decided to buy. From seriously actively looking to buying, it took me about 3 months. Because once I realized that buying was a much better option, I wasted no time getting our own property.

Here are the main reasons that propelled us to take this action:

Promising growth of the housing market in Switzerland.

According to SNB, Switzerland’s average real estate price grew by about 4% per year. That is without leverage. If you take 80% of the purchase price as a mortgage, your property’s annual growth rate is 20%. Real estate is great if you hold it long-term and take reasonable leverage.

Since 2017, I have paid attention to different building projects and checked online every now and then. But I never made up my mind actually to buy a home. Until mid-2021, I realized that all the properties I checked in the past are now worth 30%-40% more in value.

Given the average growth in the whole of Switzerland and my personal experience seeing how much the properties have appreciated, I felt like I am missing a million here. My strategy is not flipping, so I know I will hold it long-term. Therefore, I have more confidence that, over the long run, the real estate market will appreciate.

The monthly housing cost is much lower than the rent

The cost of owning a property contains:

1. interest payment
2. maintenance cost
3. income tax from ‘assumed rental income’ (Eigenmietwert)
4. Property tax in some cantons.
5. Opportunity cost: the profit I could have earned if I had invested the downpayment money.
6. Additional income tax if the property is in another region with a higher income tax rate.

The earnings/savings of owning a property contain:

1. Property value appreciation in the long run.
2. Income tax savings from interest payment

Utilities (Nebenkosten) cost is more or less the same as when you rent. When you buy, you will amortize your mortgage, but it is not a cost; it is you putting your money into the house. We will talk about this in a later section.

In the cantons we are looking at, there is no property tax. So I made an excel to compare the monthly rent vs. the monthly cost if we were to buy a similar apartment to the one we were renting.

It showed that if we were to buy a more expensive home, the cost of owning is similar to the rent. If we were to buy a similar apartment, the cost of owning is less than the rent. But, if we calculate the asset appreciation, there is no double that owning a property is a better financial decision.

If you are interested in receiving this excel, you can leave a comment below or email me.

In conclusion, buying is a better financial decision in the long run.

However, if your rent is very low and you are living in a region where the purchase price is very high, and you invested your money that could be used as a downpayment, maybe you will reach a different conclusion than mine. The point here is to be clear about each decision’s opportunity cost besides the obvious costs.

I have full freedom to do whatever I want inside the apartment

I like decorating my home, so I painted several walls in the last rental apartment. It makes me feel very cozy at home when I decorate it the way I want. But when we returned the apartment, we had to spend thousands to make it back to white again. This is just a small example. When I own a home, I won’t worry about drilling holes in the wall or changing the wall colors. I can even replace the appliances if they are inconvenient or knock off a wall if I wish. This is the added bonus when owning a home.

Subletting when abroad for sometime

If we were to move abroad for a short time, we could freely rent our apartment and use some of the rental income to cover the mortgage and other costs. Since it might be possible, owning a home provides us with this flexibility. This will not be subject to a landlord’s approval.

Given the main financial reasons and a few other added bonuses, buying is a better choice for us. I think it is important that you write down the numbers; it gives you much clarity. If you like your current rental apartment, it would otherwise cost you CHF500,000 in the long run or just CHF100,000 in 5 years. Would you still keep renting it?

2. Setting the budget & criteria

We are not like most couples whose budget meets their maximum affordability. Like my Fast Track Money Course business partner Financial Imagineer said, most people go to the bank and ask them what the maximum mortgage they can take is. Then they start looking for a house with that number in mind. Right from the beginning, we have decided to find a property that only, with one of our salaries, we can easily afford it. It is our first home, not a forever home, so we are ok that it is not a dream house. But it serves the purpose for us to save more, invest more, and build up our net worth over time, and we can upgrade in the near future. At the same time, it is not a big deal if one of us loses the income. We don’t have to panic because we have a big mortgage to pay.

I think it is important to know your financial situation and have realistic expectations of your financial future. Do you want to buy a dream forever-family home? Or are you going to upgrade in the future? What is the monthly payment? Can you still afford it if you or your partner lose income? Do you want largely reduce your housing cost and save more to invest for the future? There are a lot of questions that you need to ask yourself.

In our case, we want to buy an apartment because it requires less maintenance than a house. We want the monthly housing cost to be as low as possible while still maintaining a good living standard. So our aim is not to find the dream home with everything that I dream of, such as high ceilings, smart home, luxury kitchen, and so on, but to find a property that is good enough to meet our current needs, such as 3 bedrooms, 2 toilets, enough living space, modern kitchen and toilet, underground parking, floor heating, etc. We set the budget to be within the affordability of one person’s current income. In the worst case, we will still be able to afford the apartment easily. In a good case, we will have much more savings and can invest much more every month.

Since the region’s real estate prices where we were renting are very high. We started looking into another canton, somewhere near my mother-in-law. It is nice to live close to families. So we focus on places that have good public transportation, facilities, and a growing population. I know the income tax rate will be higher in this region, but I don’t expect to have a drastic income increase; the move would still make sense for us. If our income has reached a certain level, the tax saving is quite significant; it would be so easy for us to rent in a low-tax region or even buy a property there. So we still have the flexibilities to change when our financial situation changes.

Another reason why we are looking further into another canton for a lower price is that it would be our transition home. We know that in the future, we will upgrade; for now, I am paying into my own property instead of paying rent. In the future, it can turn into our investment property. Now, it helps me save more and have more flexibility in life.

3. Listing information & valuation

The most common places where people search are comparis.ch, homegate.ch, and immoscout24.ch. There are a few other websites where you can also find listings. Besides those, I also pay attention to the advertiser. Sometimes I would go to the real estate companies’ own websites to check the listings. There are many real estate building companies that often have new projects coming. If you sign-up for their newsletter, you can get first-hand information before the unit hits the market. It is important to be resourceful and gather as much information as possible to analyze better.

I want to find properties that are priced below market value. This is one of the criteria. Because as I mentioned before, I treat it as an investment property. The purchase price would directly impact the profit. If I manage to buy a property that is below market price, I will already make a profit when I make the purchase. I know many people are willing to pay extra for their dream home. Like I said before, it depends on what your goal is and what your future plan is. In our case, we treat it as an investment that can bring us utilities.

I have to do extensive research to find properties that meet all my criteria and are priced below market value. Some good listings are not easily found as the advertiser might not want to try hard to list them everywhere. And they can still sell them easily.

From my personal experience, some real estate agencies tend to price the properties on the higher end, while others tend to price the properties on the lower end. Some banks value the properties on the higher end; others value the properties on the lower end. Those all play an important role in helping you decide and get a mortgage.

You can use a website such as Houzy.ch to evaluate the price. You can use RealAdvisor or other listing platforms to check the prices and then calculate the per-square-meter price, considering the building quality and interiors. With time, you will be able to have a feeling that a property is overpriced or underpriced.

If you are in talks with a few banks already, you can send them the apartment’s selling information. They would be able to give your a valuation. Some banks tell you if the listing price is more or less the same as their valuation, and some will give you their valuation directly. So you can compare different valuations and have some idea of their value.

The apartment we purchased is about 15% below market value. I noticed that the listing prices from this particular real estate company are very conservative. All the prices are quite reasonable. Maybe they will try to sell faster.

4. The actual purchase process

I have to say, the search process for me is very intensive. I spent hours checking and doing research online. We visited several places, which helped us realize what we wanted and didn’t want. Sometimes it helps to see different properties with your own eyes; then, you might realize which criteria are more important to you and which are not. For example, initially, we wanted to buy an old house, renovate it, and turn one floor into a rental apartment. After visiting a few, we quickly realized the amount of work, time, and energy needed to take on such a project. And for the first property, we don’t want to do that; we want a place in move-in condition then we reduce our housing cost immediately.

After searching, visiting, and setting up clear criteria, I quickly spotted the right apartment. We visited it once. I sent the information to the banks; all came back with a higher valuation. Clearly, it is the right one, and we decided to buy it.

Once the confirmation arrived from the seller, the agent assisted with the contract and everything else. We first paid a deposit. But the whole process took longer than usual because the seller’s wife was expecting a baby, and they needed more time to organize their home. And for us, we have enough time to inform our landlord that we will be moving out. I think in total, when we decided to buy till move in, it took four months. Within four months, I have enough time to find the best mortgage. We managed to get rid of a lot of unnecessary things at home. During the move, we know that we still own too many things. So we started to get rid of more stuff after we moved in.

If I remember correctly, it is as follows

• Sign the reservation contract with a small deposit
• Sign the purchase contract
• Arrange the withdrawal of pillars 2 and 3 if you want to use the money from those pillars.
• Go to the notary to transfer the title
• Arrange the mortgage with the bank
• Agree on the handover date; that is our move-in date.

The actual cost of buying is surprisingly low compared to other countries, which are charged by the percentage of the purchase price. In total, the cost of buying is a few thousand Swiss francs. We did not pay any agency fee.

5. How to find the best mortgage rate

A small difference in mortgage rate will result in a big difference over the long run. Therefore I took time to research and talk to different companies to find out what is the best for us. Because the housing prices in Switzerland are not low, the loan amount is usually 80% of the total value. That is easily above CHF500,000. When you purchase a CHF1,000,000 apartment, your loan amount could be CHF800,000. Let’s use the example of CHF800,000 with an interest rate of 2% and 2.2%.

With an interest rate of 2%. The annual interest payment is CHF800,000 x 2%=CHF16,000

With an interest rate of 2.2%. The annual interest payment is CHF800,000 x 2.2%=CHF17,600

The difference is CHF1600 per year.

Suppose you choose indirect amortization in the next 15 years; your mortgage amount will not decrease, so the total interest paid in 15 years would be CHF 24,000 (CHF16,000 x 15).

Even if it is a 0.2% difference, over the long term, the difference is significant. When I was looking for the best interest rates, some providers’ rates were much higher than others. If you don’t spend time to find the best offers, you could lose a huge amount on interest payments.

Now you understand the importance of finding the best mortgage, I will tell you what I did to find the best interest rate for me and how you can use this approach.

1. Check the mortgage interest rate on websites that consolidates the rates from various banks and institutions such as : comparis.ch, houzy.ch, hypotheke.ch,
2. Talk to financial service providers and ask for offers. Their services are not free, but you can have a first free consultation session with them, telling them about your property, your personal financial situation, and what mortgage you need. If you like to work with them, they will find a suitable solution for you. Those companies are: vermoegenszentrum.ch, moneypark.ch. One company I really like is Hypohause.ch . They can give you the quote of the best mortgage interest rate offer from their partners, but they won’t charge you anything. Unlike other companies that charge you a fee for their service, Hypohause only charges from the institution that sells you the mortgage. So for the end customer, you have no cost. Even if you decide not to go ahead with them, there is no fee. No obligation from the end customer side. And their consultants are very friendly.
3. Contact your own bank and other banks. If you have an existing relationship with a bank, it is easier to negotiate a good package deal. Some banks are more flexible than others. I know some friends who have been with their banks for more than 10 years and invest through the bank, salaries go to the bank, and they receive better conditions when it comes to loans. But it really depends on your personal situation and how flexible the banks are.

There are many ways to receive mortgage offers because they make profits when they lend you money. As a customer, you have wide choices. I would always go with the lowest rate. The main point here is to do your research. Don’t just settle on the first offer your bank gives you. Ask around, and you will for sure find good offers.

6. How to decide on amortization

There are two ways to amortize: direct and indirect. Swiss law requires that you amortize the property to 65% loan value in 15 years for self-living properties. If you pay 20% as a downpayment and take 80% of the value as a mortgage, your amortization amount is 15% of the purchase value. You reduce the loan amount when you do direct amortization because you are ‘buying back’ from the bank over time. When you do indirect amortization, your loan amount does not decrease, and your interest payment remains constant. You can refer to this article <Buying a Property: Direct or Indirect Amortisation?> to learn more about amortization.

You might wonder why some people choose indirect amortization if the interest payment remains the same. There are few advantages:

• You can use pillar 3a for indirect amortization if you invest in your pillar 3a every month into the bank’s fund if you take the mortgage from this bank. You are earning investment return over time. And this return might be higher than your mortgage interest rate. For example. I could have paid back CHF6,000 yearly to my bank to amortize my mortgage. My mortgage interest rate is 2%. So I am reducing the CHF120 interest payment per year. But if I choose to invest this CHF6,000 in a pillar3a fund, the average annual return is 6%. I am earning CHF360 per year. On the other hand, I pay CHF120 interest more compared to direct amortization. So the net profit is CHF240 per year. This only works if your investment return is higher than your interest rate over a long period of time.
• Director amortization helps you to reduce income tax. The interest payment is tax-deductible. If you have higher interest payments, you have more deductibles. Again, you need to look at the bigger picture. How do you use your cash, and if the cash generating a return to you or saving money for you?

Personally, I think indirect amortization is suitable for you when you:

• Know the value of investing and stick to it long-term, which will generate a higher annual return than your mortgage interest rate.
• Want to contribute to pillar 3 in any case
• Have a cheap mortgage and want to reduce income tax

direct amortization is suitable for you when you:

• Do not contribute to your pillar 3a
• Want to reduce the loan amount and feel good about it
• Have a high-interest-rate mortgage

If you are unsure about pillar 3a and how it works, in any case. You can check out <Simple Explanation of the Pension Fund in Switzerland> and <How to Create Wealth with Your Pillar 3a>

Conclusion

Purchasing real estate takes time and energy if you want to find a good deal. Because it will stick with you for years to come, so does your mortgage decision. In Switzerland, it is not profitable to flip houses. Because the tax on capital gain is very hefty if you hold it for the short term. Therefore, before buying anything, you must do enough homework and research to find the best deal. Afterward, spend sufficient time on finding the best mortgage solution. As I explained in the article, one decision could result in tens and thousands of opportunity losses.

If you would like to have a personal consultation session with me on any of the topics, you can write me here or check out more articles on FastTrack.life.