Everything you need to know about a 2nd mortgage.
If you're considering buying a property, you may wonder when you should take out a 2nd mortgage. Here's everything you need to know.
The limits of a 1st mortgage
First, you need to know that a 1st mortgage is limited to a maximum of two-thirds of the property's value. If you need more money to finance your purchase, you can take out a 2nd mortgage.
The 2nd mortgage in detail
The 2nd mortgage finances the portion exceeding 2/3 of the property's value. As a rule, the bank finances a maximum of 80% of the value of the property, divided into two mortgages:
- 1st rank: maximum 66.6% of the value of the property
- 2nd: maximum 13.4% of the value of the property
For example, if the purchase price is CHF 1,000,000 and you contribute CHF 250,000 (i.e., 25%) of your own funds, the loan-to-value rate is 75%. This means that the 1st mortgage will be CHF 666,000 (i.e., 66.6%) and the 2nd mortgage CHF 134,000 (i.e., 13.4%).
Amortisation of the 2nd mortgage loan
The main difference between first and second mortgages is the repayment obligation. Unlike a first mortgage, a second mortgage must be repaid within 15 years or before retirement age, depending on which comes first.
Taking out a 1st or 2nd mortgage
It is important to note that taking out a 2nd mortgage is not compulsory. If you have sufficient equity, you can take out only a 1st ranking mortgage to buy your property.
In conclusion, it's important to fully understand the obligations involved before deciding to take out a 2nd mortgage.
