In Switzerland, when a mortgage covers more than 2/3 of collateral value, the portion of the mortgage below the 2/3 mark is known as the first mortgage. Although a first mortgage can usually be amortized (see more on amortization), the borrower is under no obligation to amortize the loan.
The portion of the mortgage which makes up the difference between the first mortgage and the total mortgage is the second mortgage. Mortgage lenders may (and usually do) charge a higher mortgage rate for a second mortgage. The reason for this is that the high loan-to-value ratio of more than 2/3 means that the bank or insurer which provides the mortgage carries a higher level of risk.
First mortgage - example
Collateral value (purchasing price): 600,000 francs (100%)
Down payment: 120,000 francs (20%)
First mortgage: 400,000 francs (66 2/3 %)
Second mortgage: 80,000 francs (13 1/3 %)
Total mortgage: 480,000 francs (80%)
More information:
Mortgages in Switzerland compared
What is a loan-to-value ratio?
What is a second mortgage?
Indirect Amortization - simply explained
Amortization - simply explained
