Mortgage vs. loan

A mortgage – or mortgage loan – is a third-party amount provided by a mortgage lender that is raised to finance a property. Interest is to be paid by the mortgage holder on this third-party amount, on top of any repayments to the mortgage lender. In the case of a mortgage loan, the mortgage lender is granted the lien on the property. As such, they are protected against any potential default.

What is the difference between a loan and a mortgage?

Unlike a mortgage, a loan is a credit amount with no fixed financing purpose and no physical collateral. Or, to put it another way: A mortgage also constitutes a loan, however, it is physically collateralized by the property itself, in that the property is used as collateral against any potential default of the borrower.

Which is better – mortgage or loan?

If you wish to purchase a property in Switzerland, you will normally have to finance 20 % of the property value through equity capital. The remaining 80 % is financed via third-party means – the mortgage. 
The question of whether a mortgage or loan is better is fundamentally flawed, since each of these forms of financing serves a different purpose and the framework conditions are different.
A personal loan is particularly suitable if you want to renovate your own home or need financing for your home furnishings and an increase in the mortgage is not possible. In the case of a mortgage, the property is considered as collateral for the lender, which is why lower interest rates are possible with this form of financing.

Increase your mortgage or take out a loan?

If you want to finance a renovation or new home furnishings, you must apply to a lender for either a restructuring of your current loan or for a new loan. The banks will review how much of the first mortgage has already been paid off, as the property will continue to be considered as collateral for the property loan.
A personal loan generally offers more favorable and flexible terms, despite the interest rates being higher by comparison. Here is an overview of the benefits of a loan compared with an increase in your mortgage:

Benefits of a loan

  • Flexible terms and more favorable repayment options.
  • Liens on the property do not have to be transferred to the lender.
  • Borrower does not require equity capital.

Benefits of increasing your mortgage

  • Lower interest rates.

Achieve your goals. Calculate your loan.

Once you have decided on the right form of financing, you can use our online credit calculator to calculate the optimal loan amount

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