An introduction to first and second mortgages.

First and second mortgages in simple terms.

Financial institutions usually provide 80% – and in exceptional cases up to 90% – of the purchase or construction price as a mortgage for residential property. The remaining 20% must be provided in the form of a deposit. In the case of borrowed capital, there is a distinction between the first and the second mortgage, whereby the first mortgage can amount to up to 65% of the property value and the second covers the rest up to a maximum of 80% (or 90%). The reason for subdividing the loan is that, with a second mortgage, there is an obligation to repay it. It must be repaid within 15 years or, in the case of most lenders, by the time the borrower reaches pension age at the latest. This amortisation ensures that borrowers have less debt and a greater capital buffer for any value corrections as they age. In Switzerland, the first and second mortgage are mostly take out with the same lender, as there are no institutions that only finance second mortgages.