The step into owning your own home is often a life-changing decision that needs to be carefully considered. In Switzerland, the affordability calculation is of crucial importance. Its purpose is to ensure that the financing of a property is on solid footing in the long term. In this blog post, we take a closer look at how the affordability calculation works and what conditions play a key role in it.
What is the affordability calculation?
The affordability calculation is a financial analysis designed to ensure that the buyer of a property can meet the financial obligations of a mortgage. It takes into account various factors to ensure that the monthly installment payments on the loan or mortgage are in line with the buyer's financial capabilities.
How does the affordability calculation work?
The affordability calculation is based on several financial factors:
- income: The buyer's income is one of the key aspects. It includes not only the current salary, but also other sources of income such as rental or interest income.
- expenses: All existing financial obligations and expenses are taken into account. This includes not only current expenses such as rent, utilities and living expenses, but also existing loans or liabilities.
- interest rate and amortization: the current interest rate and the amortization terms of the loan significantly influence the monthly installment payments. Higher interest rates result in higher monthly charges. When calculating affordability, banks usually assume a mortgage interest rate of 5% and an amortization period of 15 years.
- equity: The buyer's existing equity also plays a role. Higher equity can reduce the monthly payment. Generally, at least 20% of the purchase price of a property must be financed by equity.
The affordability calculation is usually performed by banks or financial institutions. As a rule of thumb, the cost of the mortgage should not exceed one-third or 35% of gross income.
The affordability calculation is a crucial step when buying real estate in Switzerland. It ensures that the financial burden of the purchase is sustainable in the long term. Potential buyers should take a thorough look at their financial situation and, if necessary, seek professional advice to ensure they make the right decision.
The step into owning your own home often represents a life-changing decision that needs to be carefully considered. In Switzerland, the affordability calculation is crucial in this regard. Its purpose is to ensure that the financing of a property is on solid foundations in the long term.
