# Dream house found: But how should I finance it?

5/6/2021

## For many people, owning a home is an integral part of life planning and in most cases, a mortgage is required to be able to finance it.

A mortgage can be taken out via a bank or online via portals such as www.caveo.ch/hypotheken-rechner. But before you do, make sure to compare the conditions and observing the development of interest rates.

**Different types of mortgages**

There are three common types of mortgages in Switzerland: the fixed-rate mortgage, the SARON mortgage and the variable-rate mortgage. With the fixed-rate mortgage, the interest rate is fixed, i.e., the interest rate remains unchanged over the entire term. As a rule, a term of two to ten years is possible. Because the interest rate remains the same, fixed-rate mortgages are very suitable for people with a regular and constant income.

The interest rate of a SARON mortgage is made up of the average of the compounded SARON interest rate and a bank margin (individual surcharge). The bank margin remains unchanged for the framework term (usually two, three or five years). The actual interest rate to be paid, or the interest payment in francs, can only be calculated retrospectively, on the interest payment date. This is because the SARON reference interest rate is only valid for one day at a time. It is therefore not known in advance how the reference interest rate will develop during the interest payment period. Lenders can only refinance for one day at a time.

The variable mortgage, on the other hand, does not have a fixed term. The interest rates are adjusted by the bank at regular intervals. They are based on the usual market interest rates. Although clients lack long-term planning security, they can benefit from low or falling interest rates.

**Comparing interest rates **

No matter which type of mortgage you choose, two factors remain essential: the interest rate and the term. Since the interest rate ultimately determines the effective cost of the mortgage, it's worth comparing. Another important criterion for the interest rate is the loan-to-value ratio, which shows how high the market value of the property is compared to the mortgage amount. The higher the proportion of equity, the lower the loan-to-value ratio, which again has a positive effect on the interest rate for the mortgage.

**Choosing the right term**

The second important element in financing a home is the term of your mortgage. Since the mortgage amount is not always repaid at the end of the term, an extension of the mortgage is necessary. Therefore, a term should be chosen to benefit from the current but also the future, expected interest rates. Since an extension of the mortgage, i.e., the new interest rate, can be fixed earlier, the interest rate development should always be kept in mind during this phase.

**The Caveo mortgage advice service**

Your Caveo mortgage advisor acts as an independent mortgage broker and creates a link between you and the institutional lenders via the mortgage exchange. In this way, your mortgage advisor can achieve the best interest rate in the market for you.

Your Caveo Team

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