Payment-to-income ratio

Real ratio of effective mortgage charges to household income.

The payment-to-income ratio represents the real relationship between effective mortgage charges and the household's gross income. It differs from the theoretical debt-to-income ratio calculated by banks using a 5% rate.

While the theoretical debt-to-income ratio serves as a lending criterion for banks, the payment-to-income ratio reflects the real financial burden borne by the borrower at current market conditions.

Example: for a mortgage of CHF 800,000 at an effective rate of 1.5%, real annual charges are approximately CHF 22,000 (interest + amortisation + maintenance), representing a payment-to-income ratio of 11% for an income of CHF 200,000 — well below the theoretical debt-to-income ratio of 32%.

This distinction is important for understanding why some households are refused financing even though their actual burden would be entirely manageable.

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