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The first and second mortgages are briefly explained

The credit requirement determines the rank of the mortgage. We will explain the terms first and second mortgage to you.

Rarely is it possible to finance a property entirely from your own funds? Most real estate buyers need outside capital in the form of a mortgage. Depending on how much-borrowed capital you need, you speak of a first or second mortgage.

Take out a first or second mortgage?

Whether you only need a first-rate or a second-rate mortgage tranche depends on your individual financing needs. A so-called first mortgage is usually available with a loan-to-value ratio of up to 65 percent. Financial institutions grant a second mortgage with a loan-to-value ratio of between 65 and 80 percent. The loan-to-value ratio describes the relationship between the mortgage amount and the value of the apartment or house. The higher the mortgage on the property, the more debt capital the borrower has taken out. 

First and second mortgages must be taken out with the same provider.

Assuming you need more than 65 percent debt capital, you are tied to the same provider for the Silent second mortgage. In Switzerland, it is hardly possible to take out a first and second mortgage with different financial institutions.

Product mix across multiple mortgage tranches

If you divide your mortgage debt into several tranches, you can choose a different product for each tranche. If you are lending more than two-thirds of the property’s value, you will often have to choose at least two tranches since the first and second mortgages are usually offered under different conditions.

However, you can then combine Libor and fixed-rate mortgages, for example. However, when tranching the mortgage, you should be careful not to bind yourself even more closely to one provider, for example, by choosing an unfavorable term. Of course, tranching the mortgage burden is also possible if you only finance in the first rank, i.e., you need less than 65 percent borrowed capital.

Compulsory amortization only for secondary mortgages

Since 2014, there have been stricter rules for paying off second mortgages. Mortgage borrowers must repay their second mortgage within 15 years (no longer within 20 years) or by the time they reach retirement age. However, there is no obligation to amortize the first one. Whether you let the mortgage stand or continue to amortize depends on your living conditions, tax aspects, and your investment alternatives. Our advisors will be happy to answer any questions you may have about amortization or choosing the right mortgage mix. Simply arrange a consultation appointment online at one of our branches.

First and second mortgage ranks

The designation of the rank refers to the ranking of the land charge: the claims of the creditors in the first rank are served with priority. If, for example, the sales proceeds from a foreclosure auction are not sufficient to cover all claims, the second-tier creditors lose out. As a result, financial institutions often charge a slightly higher interest rate for a second mortgage. You can find an overview of current interest rates.

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