Home ownership dream: 5 key questions & answers | key4.ch

The dream of home ownership: 5 key questions & answers

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17.12.2020 | 2 minutes

Purchasing property – whether a single-family house or an apartment – is a project that involves many decisions and substantial investments. With so many unanswered questions, you can soon become disheartened. As an initial guide, we summarize the most important frequently asked questions and answers in this article.

1. Rent or buy?

Anyone living in a rented apartment knows that making major changes is only possible to a limited extent, or always requires permission from the landlord. It is of course still possible to put a shelf up on the wall and to paint the living room a different color, but the basic structure of the apartment must not be altered. In addition, any modifications you make, such as painting the walls, drilling holes or integrating cat flaps must be undone when you move out.

The situation is completely different if the property actually belongs to you: you are free to design everything in any way you like, providing you observe the applicable building regulations – and, in the case of condominiums, the regulations of the condominium owners’ association. This gives you long planning reliability because it is more difficult for either party to terminate the living arrangements.

The advantages at a glance

  • High quality of life – it simply feels good to live in your own house
  • Good provision for old age
  • Potential tax advantages
  • Home ownership as a financial investment (possible increase in value depending on location and property)
  • Ability to benefit from low mortgage interest rates

In addition to the differences in quality of life and design options mentioned above, the difference between living in your own property or in rented accommodation naturally entails other obligations in terms of running costs.

And here too, you might assume that the average costs incurred for maintaining your own home are much higher than those for a comparable rented property. However, since interest rates are currently so low, it is usually the other way around: the average monthly charges are lower for property owners than for tenants. It should be pointed out that the trend is now reversing – especially in exclusive locations. Renting houses and apartments is becoming increasingly cheaper while residential property prices are on the rise.

Bird’s eye view of Zurich and the Limmat.
© Getty Images

2. Which should you buy, a house or an apartment?

A house usually has more floor space and more stories than an apartment – so it follows that a house must be more expensive to buy. Or is it? The purchase price of apartments has risen so much in recent years that single-family houses are now cheaper per square meter. Consequently, the total investment depends mainly on the living area of the property in question. Apartments are only cheaper overall if they have fewer square meters than a house.

Ultimately, the choice between a house or an apartment no longer depends mainly on the budget, but above all on the buyer’s personal preference. An apartment is more likely to be worth considering for future owners who feel more comfortable in an urban environment than in a rural or suburban one.

3. Build or buy?

Many people dream of building their own house instead of buying one. The idea of being able to design everything from scratch according to their own wishes and ideas is part of the dream of building a new property. But only very few people today have the choice between buying and building. In Switzerland, building land is scarce and expensive, especially in central locations. Nevertheless, you don’t have to completely abandon the idea of your own dream home: even if you “only” buy a property, you can still help shape and determine its design. If you purchase your home off plan or convert a house or apartment, it is possible to customize it to your needs.

4. What can I afford?

Many potential buyers begin pursuing the dream of owning their own home by looking for information about properties currently being advertised on real estate portals, websites or in real estate agency windows. Not infrequently, they pick their first favorite at this stage. An initial calculation of an approximate mortgage interest rate makes the purchase of a house seem within reach – after all, the interest rate calculated is lower than the rent they are currently paying. It is not uncommon for them to have a rude awakening – namely when they take a closer look at the bill and realize that their annual income is too low or their equity insufficient.

To avoid disappointment, instead of asking “Can I afford my dream house?”, the question to be clarified in advance by prospective buyers should be: “What is the maximum price I can afford?”. This can easily be checked using the key4 purchase price calculator.

The basic rules are:

  • The desired property should not cost more than five times your annual gross income.
  • Buyers should have freely available equity that amounts to at least 20 percent of the property value. Only half of this may be obtained from their pension fund. The remaining 80 percent can be financed by a mortgage.

Here is an overview of what counts as equity:

  • Own assets: savings in accounts, cash, securities
  • Pension assets: advance withdrawals from pillar 2 or pillar 3a
  • Family assistance: gifts, advance inheritance, loans

Affordability calculation

A further factor in determining whether or not a property can be financed is known as affordability. This indicates the ratio between the cost of the property and your income. The costs consist mainly of mortgage interest, amortization payments, maintenance costs and incidental expenses.
The higher the costs and the lower your income, the greater the burden on your annual income in order to cover the financing of your home. This figure is often expressed as a percentage and should be as low as possible. You can find more information about affordability here.

A man and a woman are concentrating on documents that the man is holding in his hands; kitchen shelves are visible in the background.
© Getty Images

5. Which mortgage from which provider?

Nowadays, it is not only banks that offer mortgages, but also insurance companies and pension funds – some even do so online. This increasing competition and the wider variety of offers is certainly positive for prospective buyers. On the other hand, as a client you can soon lose track due to the large number of contact persons and different offers. With key4 it is possible to obtain several offers from different providers in just one click. This creates transparency, and advisory sessions by phone help clients decide on the most suitable offer. It is essential to consider the following points:

Mortgage models

Fixed-rate mortgage or SARON mortgage? Here are the main differences between the two mortgage models:

  • Fixed-rate mortgage: the most characteristic features are predictability and security. This is because the interest rate remains the same over the fixed term. The borrower benefits if interest rates rise during this period.
  • SARON: the SARON mortgage has a variable interest rate and an unlimited term. The interest rate depends on the SARON (Swiss Average Rate Overnight). This is calculated on the basis of completed transactions in the Swiss money market. The key4 SARON mortgage is particularly suitable for people who follow events on the money and capital markets and can cope financially with short-term rises in interest rates.

Breakdown of the mortgage

It is possible to split a mortgage into several tranches with different terms. This allows the borrower to minimize the interest rate risk. This is because it may not be necessary to refinance the entire mortgage at a higher interest rate level, but only one tranche. At key4, it’s even possible to combine tranches from different providers, allowing borrowers to benefit from particularly favorable conditions.

Mortgage terms

The term of a fixed-rate mortgage can usually be anything up to ten years. At key4, fixed-rate mortgages of up to 15 years are available. In general, the longer the term, the higher the interest rate charged to the borrower. This is because they are more or less paying for a safety margin in relation to the interest rate guarantee granted by the lender.

Conclusion: fulfilling the dream of owning your own home

Even if the many unanswered questions about buying your own home may seem daunting at first glance, it is definitely worth addressing them. After all, as well as benefiting from the financial advantages of owning your own house or apartment, you will feel good about having a safe home that you can design just the way you want.

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