First and Second Mortgages
Explained Simply
The terms and are among the fundamentals of in Switzerland. Even though many today only report a single aggregate Mortgage, internally they almost always still calculate using this breakdown.
The following text discusses the “rules” for owner-occupied properties.
The first mortgage typically covers the lower, more secure portion of the Loan-to-value ratio. Since it is repaid first in the event of foreclosure, the risk for the mortgage lender is lower and the interest rate is often more attractive. For many mortgage lenders, a Mortgage of up to about 65% is considered a first Mortgage. Learn more here: First and second mortgages
The second mortgage finances the higher portion of the Loan-to-value ratio (usually around 65% of the appraised value) and is riskier for the Mortgage lender. As a result, the interest rate may be higher, and stricter amortization requirements often apply. Anyone who wants to take full advantage of the maximum Mortgage amount will always need a second Mortgage.
Real Estate Financing
Real estate financing refers to the financing of a property using equity and debt. In Switzerland, financing is usually provided through a Mortgage, which is supplemented by own funds. To find the best Mortgage with the most favorable interest rates, homeowners should compare current mortgage rates and obtain multiple offers.
Mortgage providers include banks, insurance companies,Pension funds, or other mortgage lenders that grant mortgages. Since interest rates, approval criteria, and processes vary widely, it’s worth comparing multiple providers. A comprehensive Mortgage rate comparison can be done online in just a few minutes at
Explanation
What are first and second mortgages?
The distinction is based on the
- 1. Mortgage: up to approx. 65% of the property value
- 2. Mortgage: from 65% to a maximum of 80%
The higher the Loan-to-value ratio, the higher the risk for the mortgage lender. Mortgage lenders calculate the value of the property in different ways. Some are more stringent or use different tools to appraise the property. The amounts of the first and second mortgages therefore vary from provider to provider.
Read more here: Maximum Possible Mortgage
The loan-to-value ratio indicates what percentage of the property’s value can be financed through a mortgage. Example: For a CHF 700,000 mortgage and a Market value of CHF 1,000,000, the loan-to-value ratio is 70 percent. It influences your personal mortgage rating and thus the interest rate as well as, for example, Affordability and Amortization. Learn more here: Maximum Mortgage,first and second Mortgages explained
Long-term and stable
The 1st Mortgage
A first Mortgage is considered very secure because it is backed by a large portion of the property’s value.
Features
- Loan-to-value ratio of up to approx. 65% of the property value
- No
- often structured for the long term (possible even beyond retirement)
- usually a lower interest rate
For mortgage lenders, this segment is particularly low-risk. There are mortgage lenders, such as that only grant mortgages with a Loan-to-value ratio of up to 65% or 70%. For this reason, those with only a first Mortgage can often benefit from particularly favorable terms.
Mandatory amortization refers to the contractually required repayment of a portion of the Mortgage. In Switzerland, the so-called second Mortgage on owner-occupied residential property must generally be reduced to approximately two-thirds of the property’s value within 15 years or by the time of retirement. Mandatory amortization can be achieved either directly by repaying the Mortgage or indirectly through Pillar 3a. It serves to reduce the long-term risk for mortgage lenders and property owners.
Higher Risk, Clear Rules
The Second Mortgage
The second mortgage covers the portion of the Loan-to-value ratio above 65%.
Features
- Loan-to-value ratio ranging from 65% to, in most cases, a maximum of 80% of the property value
- must be amortized (usually within 15 years or until retirement). Amortization can be done directly or indirectly.
- Higher risk for the bank
- often a higher interest rate
The reason for the increased risk: In the event of a foreclosure, the first Mortgage is repaid first. The second Mortgage is only repaid if the proceeds from the sale of the property are sufficient to cover it (first- and second-priority Borrower's notes).
Visualization
Maximum proportions of first and second Mortgages
Minimum
How much down payment do I need?
When purchasing a property, the general rule is: at least 20% of which at least 10% —that is, excluding pension fund assets.
Equity includes
- Savings and account balances
- Securities
- Pillar 3a
- Gifts or advance inheritance
- Pension fund (restricted)
- Personal contributions or Lot
Funds from the 2nd pillar may be used in full as own funds until age 50. Starting at age 50, withdrawals are limited: You may withdraw either the amount you had at age 50 or half of your current pension fund assets, whichever is greater.
The higher amount applies. You can find out how much money you have saved in your pension fund directly from your pension fund or on your current pension fund statement. Many pension funds indicate on the pension fund statement the maximum possible amount available for home ownership (WEF withdrawal). For more information, see here: Homeownership Support (bsv.admin.ch)
Equity refers to the financial resources that a homebuyer contributes personally toward financing a property. In Switzerland, when purchasing a primary residence, at least 20% of the property’s value must generally be financed with the buyer’s own funds. At least 10% of this must come from so-called “hard equity,” such as savings, securities, gifts, or advance inheritance payments. The higher the equity, the lower the Mortgage amount, which improves Affordability and often leads to better Mortgage rates. However, the optimal amount of equity also depends on taxes, Precaution, liquidity, and personal investment strategy.
Hard own funds refer to those own funds that do not come from occupational pension funds (Pension funds). These include, for example, bank deposits, securities, gifts, advance inheritance payments, or proceeds from the sale of another property. When purchasing a primary residence, most mortgage lenders require that at least 10% of the property’s value be financed with hard equity. Funds from a Pension fund generally cannot be used to cover this portion. Banks consider hard equity to be particularly valuable because it increases the buyer’s financial stability and reduces the financing risk. This often also improves the personal Mortgage rating and the negotiating position regarding mortgage interest rates.
Source
Why are there first and second mortgages in the first place?
This classification is primarily used for risk assessment: A low Loan-to-value ratio means low risk and results in better terms. A high Loan-to-value ratio entails higher risk, stricter rules, and less favorable Mortgage terms.
A first-lien mortgage is always repaid before a second-lien mortgage if the property is sold (foreclosed). The priority of the mortgages is bindingly recorded in the Land registry. A second-lien mortgage therefore carries significantly greater risks for the mortgage lender than a first-lien mortgage.
If the entire mortgage is held by the same mortgage lender, a consolidated statement is usually prepared to assess risks and margins. In practice, however, mortgages can also be split among multiple mortgage lenders. In this case, the mortgage’s priority ranking is crucial.
Frequently Asked Questions
Answers about first and second mortgages
Within 15 years or until retirement (whichever comes first). This applies to owner-occupied residential property. Different guidelines apply to investment properties.
Because it poses a higher risk to the bank. It is a second-lien Mortgage and, in the event of default, will only be repaid once the debt from the first Mortgage has been fully repaid. That is why the interest rate on the second Mortgage is higher. Actively managing risks is a particularly important issue when it comes to mortgage rating optimization.
No, usually not necessarily. Many people keep their first Mortgage for the long term, provided their affordability is met.
Direct
Debt is effectively reduced.
Indirectly
Contribution to Pillar 3a / retirement savings; the Mortgage amount remains the same. Only after a specified period does the Mortgage begin to be paid off using the accumulated retirement savings.
Read more here: Direct or indirect amortization—which is better?
A second mortgage can only be increased if the property value has risen and the borrower still meets the Affordability requirements.
A mortgage increase is always reviewed on a case-by-case basis by the mortgage lender. In practice, it is not uncommon for the mortgage lender to block an increase in the second mortgage, even if Affordability and the “new” Loan-to-value ratio would be within acceptable limits based on the numbers alone. Each case is evaluated individually.
An important point: Not every evaluates things the same way. Differences exist in Valuation—Purchase price versus appraised value—affordability calculations, maximum Loan-to-value ratios, and how income and assets are handled.
In practice, this can lead to significant differences: For the same property, one provider may offer a maximum Mortgage of 700,000 francs, while another may finance up to 850,000 francs.
The difference often lies in the assessment and calculation methods. Some mortgage lenders are deliberately stricter, while others are willing to take on “less favorable” deals.
A mortgage lender provides the borrower with capital and receives interest in return. In the case of mortgages in Switzerland, mortgage lenders are usually banks, insurance companies or Pension funds, which secure the financing through a contract and a mortgage.
Conclusion
Understanding Leads to Better Decisions
Even though these terms are less commonly used today, first and second mortgages remain central to:
- Loan-to-value ratio
- Risk
- Amortization
- Financing Options
- Mortgage Interest Rate
If you understand the differences, you can optimize your financing strategy and compare better offers. Ask your mortgage lender what the Loan-to-value ratio is and at what value you can expect better interest rates. This is part of the for better interest rates.
Negotiating Mortgage Interest Rates
Most mortgage interest rates are negotiable. The extent of your leverage depends on your creditworthiness, loan-to-value ratio, affordability, and, above all, the alternatives you can present to the mortgage lender. If you obtain several comparable offers from banks, insurance companies, or Pension funds, you’ll significantly improve your negotiating position. Do you want to secure the best Mortgage without tedious negotiations? Use our Mortgage platform to do so. App.mortgage.ch
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