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Created on 19.12.2023

Affordability: can I afford my dream house in the long term?

If you want to take out a mortgage for a home, you must overcome two main obstacles: the equity ratio of at least 20 percent and the affordability calculation. The latter is intended to ensure that you can afford the mortgage or property in the long term. Find out how to calculate affordability here.

Affordability – the central factor when buying property

If you want to purchase a house or apartment, you have to be able to provide at least 20 percent of the purchase price from your own equity. You can take out a mortgage for the remaining maximum 80 percent. This is also called the “loan-to-value ratio”. Before the loan-to-value ratio is approved, a check is performed to determine whether you are predicted to afford the property in the long term. This means that you must be able to cover the agreed interest requirements and amortization and also the property running costs.

The factors of the affordability calculation

To assess whether you can afford your dream property, the following golden rule is applied: the annual cost of the property must not exceed 33 percent of your annual gross income. Your income is therefore a decisive factor in the affordability calculation.

But what property costs is it compared with? What is the breakdown for those costs? Here’s an overview:

Mortgage interest/imputed interest

To quantify your mortgage interest amount, the affordability calculation is not based on the actually agreed interest rate, but rather on the imputed interest rate. This is 5 percent, well above current market interest rates. This “buffer” ensures that you can afford your mortgage even if interest rates rise.

Amortization (instalment payment)

In addition to the interest payments, you will usually also have to pay amortization payments. This is because, after 15 years or at the time of your retirement (whichever occurs earlier), your mortgage debt must be reduced to a maximum of two thirds of the purchase price. The portion of a mortgage that exceeds these two-thirds is called the second mortgage.

Running costs

Running costs include costs for water, electricity, waste disposal, heating or house maintenance. For the purposes of calculating affordability, running costs are estimated at 1 percent of the purchase price.

Calculating affordability – an example

DistributionValue
Distribution
Purchase price of the property
 Value
CHF 750,000
Distribution
Equity share (20% of the purchase price)
 Value
CHF 150,000
Distribution
Loan-to-value ratio total (80% of the purchase price)
 Value
CHF 600,000
Distribution
1st mortgage (67% of the purchase price)
 Value
CHF 502,500
Distribution
2nd mortgage (13% of the purchase price)
 Value
CHF 97,500

FactorsProperty costs per year
Factors
Interest 1st mortgage
 Property costs per year
CHF 25,125 (5% of CHF 502,500)
Factors
Interest 2nd mortgage
 Property costs per year
CHF 4,875 (5% of CHF 97,500)
Factors
Amortization 2nd mortgage
 Property costs per year
CHF 6,500 (CHF 97,500 ÷ 15 years)
Factors
Running costs
 Property costs per year
CHF 7,500 (1% of CHF 750,000)
Factors
Total
 Property costs per year
CHF 44,000
Factors
Required gross income
 Property costs per year
CHF 132,000 (CHF 44,000 x 3)

Can you afford your dream property? Find out now at PostFinance

Get some in-person advice from our mortgage experts. We will discuss your personal situation and present you with some financial options.

Or use our mortgage calculator to check for yourself whether you can finance your dream home or apartment with your current equity.

Questions and answers

  • The mortgage amount is calculated from the purchase price minus the equity (at least 20 percent).

    Example:

    • Purchase price: CHF 750,000
    • Equity: CHF 150,000 (20%)
    • Mortgage: CHF 600,000 (80%)

  • An amortization obligation exists only for the second mortgage. This is the portion of the mortgage that exceeds two thirds of the market value. The first mortgage can be paid back but does not have to be.

    Example:

    • Purchase price: CHF 750,000
    • Equity: CHF 150,000 (20%)
    • Mortgage total: CHF 600,000 (80%)
    • 1st mortgage: CHF 502,500 (67% of CHF 750,000)
    • 2nd mortgage: CHF 97,500 (13% of CHF 750,000)

  • The second mortgage must be paid back after 15 years or at the time of retirement, whichever comes first. In most cases, there is no amortization obligation for the first mortgage.

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