A mortgage at 1.4 per cent – calculated at 5: why affordability decides your purchase

Two interest rates that have little to do with each other

The rate you pay and the rate used to check whether you can pay are two different things. For the assessment, banks apply an imputed interest rate of generally 4.5 to 5 per cent. This buffer is not a sign of distrust towards clients but a precaution: a mortgage runs for decades, the current interest level does not. Anyone budgeting at 1.4 per cent today and having to renew at four per cent in ten years would face a serious problem without that buffer. So the calculation at five per cent does not show what the mortgage costs, but what it could cost in an unfavourable scenario.

How the bank calculates in detail

The rule of thumb: interest costs, amortisation and maintenance together must not exceed one third of sustainable gross income. Maintenance is usually estimated at a flat rate of around one per cent of the purchase price per year. A worked example: with a purchase price of one million francs and a mortgage of 800,000 francs, five per cent imputed interest amounts to 40,000 francs, plus some 10,000 francs of maintenance and the amortisation of the second mortgage. You quickly arrive at 55,000 to 60,000 francs per year – and therefore at a required income of around 165,000 to 180,000 francs. In the same example, the actual interest cost at 1.4 per cent is just over 11,000 francs.

What has been tightened since 2025

The banks’ self-regulation on amortisation rules has been tightened. The second mortgage – the portion exceeding two thirds of the lending value – must now be repaid within 15 years instead of the previous 20, and in regular, linear instalments. For prospective buyers this simply means the annual amortisation burden is higher, and it feeds fully into the affordability calculation. On a mortgage of 800,000 francs for a property worth one million, that is around 8,900 francs per year instead of a good 6,600 francs under the old rule – a difference that makes itself felt in the one-third rule.

The lower-of-two principle: when the price exceeds the valuation

A second stumbling block in a market with rising prices is the valuation. Banks lend on the lower-of-two principle: if the purchase price exceeds the estimated market value, the lower market value is decisive. Anyone who wins a bidding round at 60,000 francs above the valuation has to cover that difference entirely from their own funds – on top of the 20 per cent equity, of which at most half may come from the second pillar. Particularly in Central Switzerland, where prices continue to rise and sought-after properties attract multiple offers, it is therefore worth obtaining an assessment of the market value before submitting an offer.

Direct or indirect amortisation?

There are two routes to amortisation. Direct means the debt falls year by year, as do the interest costs – and with them the deductible interest on debt. Indirect means the amount flows into pillar 3a and is only used for repayment later; the mortgage stays constant. Which variant is more favourable for tax and financial purposes depends on your income situation, your retirement planning and – newly relevant – on the change of system in the taxation of residential property, which will fundamentally alter the deduction of interest on debt for owners from 2029. A general recommendation would not be sound here; this belongs in a calculation that takes your specific figures into account.