When used in relation to a mortgage, a loan-to-value ratio or "collateral value ratio" compares the portion of a property covered by the home loan against the collateral value of the property. This ratio is normally shown as a percentage. The higher your home loan in comparison to the property’s collateral value, the higher the loan-to-value ratio.
Loan-to-value ratios are used by banks to determine your eligibility for a mortgage. As a rule, Swiss lenders do not provide mortgages with a loan-to-value ratio above 80%.
As of 2014, Swiss banking guidelines prohibit the financing of mortgages where the loan-to-value ratio is higher than 90%. That means you will have to be able to cover a minimum of 10% of a home’s collateral value with your down payment.
Once you know the collateral value of a property and the maximum loan-to-value ratio accepted by a lender, you can accurately calculate the maximum home loan you are eligible to borrow from that lender.
In addition to the loan-to-value ratio, you will have to meet other criteria before your mortgage is accepted. Read up on affordability and amortization to find out more about these eligibility requirements.
Loan-to-value ratio: Example 1
If your property has a collateral value of 800,000 francs and your home loan covers 640,000 francs, your loan-to-value ratio would be 640,000 francs / 800,000 francs = 80%.
Loan-to-value ratio: Example 2
You know that the collateral value of a property is 800,000 francs. You also know that the bank only accepts mortgages with a loan-to-value ratio of 80% or less.
Using these figures, you can easily estimate your maximum home loan:
Maximum home loan = (collateral value) * (maximum loan-to-value ratio) = 800,000 francs * 80% = 640,000 francs.