What is the loan-to-value ratio (LTV)?

The loan-to-value ratio (LTV) is the ratio between the mortgage amount and the lending value of the property. An LTV of 80% means the bank finances 80% of the property value and the buyer provides 20% equity. In Switzerland, the maximum is generally 80% for a primary residence.

What is the lending value (valeur de nantissement)?

The lending value is the value the bank assigns to the property as collateral. It corresponds to the lower of the purchase price and the bank's valuation. If the bank values the property at CHF 950,000 but the purchase price is CHF 1,000,000, the lending value is CHF 950,000.

Can you obtain an LTV above 80%?

Yes, in certain cases, notably by pledging your 2nd or 3rd pillar. The bank accepts these assets as additional security and can thus finance above 80%. The interest rate is generally slightly higher to compensate for the increased risk. Some banks accept up to 90% with pledging.

Does the LTV influence the interest rate?

Yes, generally a lower LTV (therefore more equity) allows you to negotiate a better interest rate. The risk for the bank is lower, which translates into more favourable conditions. The difference can be 0.05% to 0.2% depending on the institution and the LTV.

Loan-to-value ratio (LTV) and pledging: optimising your mortgage financing

The loan-to-value ratio is a central parameter of mortgage financing. It determines not only the amount you can borrow but also influences your mortgage conditions. Understanding the pledging mechanism and its implications allows you to optimise your financing strategy.

Loan-to-value (LTV): definition and calculation

The loan-to-value ratio (LTV) expresses the ratio between the mortgage amount and the lending value of the property:

LTV = Mortgage amount / Lending value x 100

The lending value

The lending value is not necessarily the purchase price. The bank applies the lowest value principle (Niederstwertprinzip): it retains the lower of the purchase price and its own valuation of the property.

Scenario	Purchase price	Bank valuation	Lending value	Max. mortgage (80%)
Price = Valuation	CHF 800,000	CHF 800,000	CHF 800,000	CHF 640,000
Price > Valuation	CHF 850,000	CHF 800,000	CHF 800,000	CHF 640,000
Price < Valuation	CHF 750,000	CHF 800,000	CHF 750,000	CHF 600,000

In the second scenario, the buyer must cover the CHF 50,000 difference with additional equity, bringing their contribution to CHF 210,000 instead of CHF 160,000.

Mortgage liens (ranks)

The mortgage is generally structured in two liens (ranks):

Lien	Financing portion	Amortisation	Interest rate
1st lien	Up to 65% of lending value	Not mandatory	More favourable
2nd lien	From 65% to 80% of lending value	Mandatory within 15 years max.	Slightly higher

The 2nd lien mortgage must be amortised to bring the LTV down to 65% within a maximum of 15 years or before retirement age. In practice, many banks no longer differentiate rates between the 1st and 2nd lien.

Pledging: principle and operation

Pledging consists of offering an asset as collateral to the bank without liquidating it. The most common pledgeable assets are:

Pillar 3a (accounts or policies)
2nd pillar (LPP savings)
Securities and investments (with a haircut)
Life insurance (surrender value)
Other real estate

Impact of pledging on financing

Pledging allows you to obtain financing above 80% of the property value without actually withdrawing the pledged funds. The bank considers the pledge as additional security.

Element	Without pledging	With CHF 60,000 3a pledging
Property value	CHF 900,000	CHF 900,000
Equity contributed	CHF 180,000 (20%)	CHF 120,000 (13.3%)
3a pledged	-	CHF 60,000
Total coverage	20%	20% (13.3% + 6.7% pledge)
Mortgage	CHF 720,000	CHF 780,000
Effective LTV	80%	86.7%

Impact of LTV on conditions

A lower LTV represents less risk for the bank. This translates into:

Better interest rate: the reduction can range from 0.05% to 0.2%
Easier negotiation: more leverage with the bank
Less mandatory amortisation: if the LTV is already below 65% from the start, no amortisation is required

Example of cost impact

LTV	Mortgage (CHF 1,000,000 property)	Indicative rate (10-year fixed)	Annual interest
80%	CHF 800,000	1.85%	CHF 14,800
70%	CHF 700,000	1.75%	CHF 12,250
60%	CHF 600,000	1.70%	CHF 10,200
50%	CHF 500,000	1.65%	CHF 8,250

Note: the indicative rates above are illustrative examples and vary by bank, market conditions, and your profile. They do, however, show the combined impact of a lower borrowed amount and a more favourable rate.

Optimisation strategies

Contribute more equity if possible

If you have additional liquid assets, investing them in your equity can be financially advantageous. However, weigh this advantage against the potential return of those assets invested elsewhere and the loss of financial flexibility.

Pledge rather than withdraw

For both pillar 3a and 2nd pillar, pledging preserves your pension benefits and tax advantages. The mortgage is higher, but the additional interest is deductible from taxable income.

Combine strategies

You can combine partial withdrawal and pledging to find the optimal balance. For example: withdraw part of your 3a (hard equity), pledge the rest, and pledge your 2nd pillar rather than withdrawing it.

Amortise strategically

If your LTV is 80%, you must amortise down to 65%. Beyond that, amortisation is optional. From a tax perspective, it may be more advantageous to maintain a reasonable mortgage debt (deductible interest) rather than repaying everything.

The case of renovation and value increase

After value-adding renovation works, you can request a property revaluation. If the new value is higher, your LTV decreases mechanically, which may allow you to renegotiate your conditions or free up additional borrowing capacity.

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