Mortgages in Switzerland: how the system works

Property in Switzerland is expensive - and the debt burden is also high. Keystone / Christian Beutler

Home loans are cheap in Switzerland. There are good sides and bad sides to this. Here is what you need to know about mortgages in Switzerland, a country renowned for its banks.

Mortgages, it is often said, are a burden that a person has to carry for many years – perhaps even for life.

In reality, though, property loans in most countries are designed so that the debt is paid off at some point. Thus, in Germany, France and the United States, so-called repayment mortgages are common. Here the borrower repays the capital and the interest in fixed instalments over a fixed period.

The counter-model is a loan where only the interest is paid on the amount borrowed. Once the mortgage term ends, the full capital is due – and the borrower usually takes out a new mortgage. This interest-only model was particularly popular in the UK, until it was superseded by the repayment model.

Switzerland, meanwhile, follows its own path. The principle of deferred debt is still common here. And because the home loan business is attractive for banks, there are also strong incentives for people in Switzerland not to pay off bank debts in full. Thus, mortgage holders can fully deduct mortgage interest payments from their taxes.

Here is an explanation of how the system works, and what the consequences are for homebuyers and for society.

Do mortgages have to be paid off in Switzerland?

The answer is yes and no. To buy a home in Switzerland, people need to be able to pay 20% of the purchase price upfront through their own funds. The rest is financed by the bank through a mortgage.

In Switzerland, mortgages are divided into two parts. The first part (up to 65% of the property value) does not necessarily have to be amortised, i.e., paid back. The second part (15%) must generally be amortised within 15 years, or by the time the borrower reaches retirement age.

The portion of a mortgage that is subject to repayment is referred to as the “second mortgage” in Switzerland, even though it is not always actually the second mortgage.

How much money will the bank lend?

As well as having to pay 20% of the property value upfront, the borrower also must be able to handle the loan. The aim is to ensure that he or she can afford the ongoing financial expenses of a property in the long term.

To determine whether a client can afford a mortgage, the banks base their calculations not on current interest rates but on an imputed rate of 5%. This corresponds to the historical average of mortgage interest rates in the country.

The higher imputed rate ensures that if interest rates increase, the borrower will still be able to afford the mortgage payments. The difference between the imputed rate and the actual interest rate can also help the borrower save money, which can then be used to reduce the mortgage debt.

To calculate the affordability of a mortgage, a further 1% of the property value is added to the 5% imputed interest costs to account for ancillary costs and maintenance. The resulting amount must not exceed one-third of the gross household income.

Otherwise the borrower’s creditworthiness is too low and the mortgage will not be granted.

The Swiss Financial Market Supervisory Authority (FINMA) watches over the banks to ensure that they comply with these rules. If loans are granted too easily, this could have a devastating impact on the national economy in the event of a property or interest rate crisis.

Just a few weeks ago, FINMA sounded the alarm: one in three mortgages was found to be in breach of the External linkregulations.

A typical affordability calculation in Switzerland

An average single-family home in Switzerland today costs around CHF1.5 million ($1.8 million). If the buyers put down the minimum equity contribution of 20% – here CHF300,000 – they will need a mortgage of CHF1.2 million.

The 5% imputed interest rate comes to CHF60,000. Added to this is 1%, or CHF15,000, for maintenance and ancillary costs. The total is therefore CHF75,000. According to the affordability criteria, the loan burden should not exceed one-third of gross household income, so the purchasing couple must be earning at least CHF225,000 per year.

This is well above the average household income, even in prosperous Switzerland. As a result, many buyers have to contribute more than the minimum equity in order to obtain a mortgage.

Some of the money for this often comes from an advance inheritance, that is, when parents transfer part of their assets to their children during their lifetime. Many people also use their retirement savings, namely their occupational pension (known as the 2nd pillar) and private pension funds (3rd pillar), to purchase real estate. This is permitted by law in Switzerland.

In the above sample calculation, if the purchasing couple puts down CHF700,000 of the purchase price from their own funds, the mortgage will still come to CHF800,000 francs. To meet the affordability criteria, they will need to be earning CHF165,000 gross per year.

Why are interest rates in Switzerland so low?

Mortgages in Switzerland are extremely cheap by international standards, and have been for years. A ten-year fixed-rate mortgage is currently available, in May 2025, for around 1.4%External link, while three-year mortgages can even be obtained for under 1%. 

By comparison, in the US, where the average mortgage term is 30 years and the interest curve points steeply upward, the average mortgage interest rate is just under 7%External link. In Germany, ten-year fixed-rate mortgages are currently available from around 3.2%. In the UK, the cheapest ten-year mortgages stand at just over 4.4%.

The main reason for the low mortgage interest rates in Switzerland is the monetary policy of the Swiss National Bank. The Swiss franc, traditionally considered a safe-haven global currency, has appreciated against all major world currencies in recent decades.

The national bank is endeavouring to curb this appreciation with an expansionary monetary policy, in order to keep Switzerland’s export economy rolling. It also wants to discourage investors from investing in Swiss francs by keeping interest rates low.

This is possible mainly because Switzerland has comparatively low inflation. In the wake of the Covid-19 pandemic, inflation in Switzerland also briefly rose above the target of maximum 2% per year – thereby also pushing up interest rates. This, however, is now considered to be a closed chapter, and some economists even believe a return to pre-pandemic negative interest rates is likely.

Advantages of the Swiss mortgage system

The low capital costs mean that property is actually more affordable than the banks’ hypothetical calculations suggest. This eases the strain on household budgets and can facilitate debt amortisation.

The competitive market with many providers is also favourable to borrowers. Since the Swiss real estate market is very stable and properties have been steadily increasing in value for years, the bet has paid off for most homeowners in recent years.

… and risks

Cheap money continues to drive up property prices in Switzerland. In the last eight years alone, the value of houses and flats has increased by over 30%. As a result, just 20% of the population can afford to own a home. In canton Zurich, this figure is below 10%.

The high prices also put people at greater risk of being unable to afford their mortgages after retirement, especially if they dipped into their pension funds with early withdrawals.

A recent study by the comparison portal MoneyparkExternal link found that already today 29% of mortgage holders are unable to keep their property after retirement and have to sell up. And in the 50-65 age group, as many as 85% of owners will be unable to afford their mortgage payments in old age.

If property prices were to collapse, the impact would be even more far-reaching. People’s huge debt burdens could plunge many into poverty in old age. 

And the threat of a banking crisis is looming, for Switzerland has by far the highest per capita debt in the worldExternal link – because of the mortgages.

Most forecasts, however, assume that real estate prices will continue to rise, as supply is scarce and the population continues to grow significantly every year.

In the medium term, therefore, Switzerland is also likely to remain the world leader in terms of per capita property assets.

Edited by Balz Rigendinger/Adapted from German by Julia Bassam/gw.