How to calculate your mortgage affordability?

The borrowing capacity calculation is used to estimate how much you can borrow to finance a home in Switzerland as part of a mortgage. Many people ask the question very directly: how much can I borrow or how much can one borrow with my salary? The answer isn’t just a “mathematical” rule: it reflects a banking logic that tests whether your project remains affordable over time, even if market conditions become less favorable.

Understanding what borrowing capacity measures in Switzerland

When you apply for financing, the lender aims to validate your mortgage borrowing capacity. Concretely, it checks that your housing costs remain reasonable relative to your income.

Key definitions to know (understand before you calculate)

• Borrowing capacity : the mortgage amount a lender is willing to grant you based on your income, your expenses and its internal rules.
• Own funds (equity) : your personal contribution (savings, part of pension assets under certain conditions, gift, etc.). In everyday language, this is your “down payment”. In a calculation, it is the part of the purchase price you do not finance with the mortgage.
• Property value : the purchase price (or a value retained by the bank if it considers the price too high relative to the market).
• Mortgage amount : the share financed by the lender. Simple formula : mortgage = property value – own funds.
• Loan-to-value (LTV) : the percentage financed by the mortgage. Example : property at 1 000 000 CHF, own funds 250 000 CHF → mortgage 750 000 CHF → LTV 75%.
• Housing costs (in the lender’s sense) : this is not your actual monthly payment “at today’s rate”. It is a conservative estimate of annual housing costs, used to test the robustness of the project.

The logic of the test: theoretical costs and an affordability threshold

In Switzerland, many assessments rely on a practical rule of thumb: the theoretical costs of housing should not exceed about one third of your income (often gross annual income, depending on internal policies). This does not mean one third is your “comfortable” budget, but that it is a benchmark used to decide whether the financing is affordable.

The theoretical costs generally add up three components:

1. Interest calculated at a prudent rate
   Instead of using only the rate actually offered at time T, the bank often uses a higher theoretical rate (prudence). The goal: to check that you can still cover the costs if rates rise.
2. Maintenance and costs
   A flat estimate for maintaining the property (often expressed as an annual percentage of the property value). This amount is meant to cover wear and tear, minor repairs and part of recurring costs.
3. Amortization (planned repayment)
   In Switzerland, it is common to distinguish a part of the mortgage that must be part of an amortization plan (debt reduction) along a defined trajectory. This depends on the level of financing and the rules applied.

The method for calculating your borrowing capacity (a simplified “bank” version, but useful)

To calculate borrowing capacity, you can follow a structured method. It does not replace a full lender assessment, but it gives you a consistent estimate and helps you understand which levers influence the result.

Steps and working formula

Step 1 — Set your starting inputs

• Household gross annual income (salaries, possibly a portion of bonuses if you want to stay conservative, etc.).
• Own funds (equity) available (in CHF) or as a percentage of the purchase price.
• Target property value (in CHF).

Step 2 — Derive the mortgage

• Mortgage = Property value – Own funds.

Step 3 — Split the “first tranche” and the portion to amortize (1st rank / 2nd rank logic)
To understand amortization, people often use this reading:

• Up to about 2/3 of the property value : this is the zone generally considered “more stable” (often called 1st rank in everyday language).
• Above about 2/3 : this is the zone that, in many frameworks, must be amortized to bring the debt back to 2/3 within a typical timeframe (often 15 years).
  This portion is sometimes called “2nd rank” (in the practical sense of the calculation).

You don’t need to be an expert in terminology: just remember this — the more your financing exceeds 2/3, the more amortization weighs in the calculation.

Step 4 — Calculate theoretical annual costs
For a simple (and readable) estimate, you can take:

• Theoretical interest = Mortgage × 5%
• Maintenance/costs = Property value × 1%
• Amortization (portion above 2/3) = (Mortgage – 2/3 × Property value), if positive, then ÷ 15

Step 5 — Test affordability

• Cost threshold = Gross annual income × 1/3
• Condition : Theoretical costs ≤ Cost threshold

Why is this method useful?
Because it answers the question “how much can I borrow” by showing you what’s holding things back : the theoretical interest, maintenance, or amortization. In many files, it is the amortization of the portion above 2/3 that tips the result, especially when own funds are close to the minimum.

Worked examples: calculate your borrowing capacity step by step

The examples below use fixed working assumptions so you can easily compare the situations:

• Theoretical interest: 5% per year
• Maintenance/costs: 1% per year
• Amortization: reduce the portion above 2/3 over 15 years
• Affordability threshold: 1/3 of gross annual income

These assumptions are deliberately simplified. They are meant to help you calculate borrowing capacity consistently, not to reproduce a bank’s spreadsheet exactly.

Example 1 — Income 180,000 CHF/year, own funds 20%: “how much can you borrow?”

Data

• Gross annual income: 180,000 CHF
• Cost threshold (1/3): 60,000 CHF/year
• Own funds: 20%
• Target property: 1,020,000 CHF

1) Mortgage

• Own funds = 1 020 000 × 20% = 204 000 CHF
• Mortgage = 1 020 000 – 204 000 = 816 000 CHF

2) Theoretical interest

• 816 000 × 5% = 40,800 CHF/year

3) Maintenance/charges

• 1 020 000 × 1% = 10,200 CHF/year

4) Portion above 2/3 (to amortize in this model)

• 2/3 of 1 020 000 = 680,000 CHF
• Portion above = 816 000 – 680 000 = 136,000 CHF
• Annual amortization ≈ 136 000 ÷ 15 = 9,067 CHF/year (rounded)

5) Total theoretical costs

• 40,800 + 10,200 + 9,067 = 60,067 CHF/year

Note
You are very close to the threshold (60,000 CHF/year). In real life, depending on the institution, rounding and your other expenses, the project may pass, pass with conditions, or require an adjustment (a slightly cheaper property, slightly higher own funds, or a different structure).

This case illustrates the following point well: with 20% own funds, the portion above 2/3 is often significant, and amortization becomes a major part of the calculation.

Example 2 — Income 120,000 CHF/year, own funds 30%: more own funds change the dynamics

Data

• Gross annual income: 120,000 CHF
• Cost threshold: 40,000 CHF/year
• Own funds: 30%
• Target property: 845,000 CHF

1) Mortgage

• Own funds = 845 000 × 30% = 253,500 CHF
• Mortgage = 845 000 – 253 500 = 591,500 CHF

2) Theoretical interest

• 591,500 × 5% = 29,575 CHF/year

3) Maintenance/charges

• 845,000 × 1% = 8,450 CHF/year

4) Portion above 2/3

• 2/3 of 845,000 ≈ 563,333 CHF
• Portion above = 591,500 – 563,333 ≈ 28,167 CHF
• Annual amortization ≈ 28,167 ÷ 15 ≈ 1,878 CHF/year

5) Total theoretical costs

• 29,575 + 8,450 + 1,878 ≈ 39,903 CHF/year

Note
Here you are below the threshold with a small margin. The difference is not just “a higher down payment”: at 30% own funds, the portion above 2/3 becomes small, so amortization weighs much less. This is a concrete example of a powerful lever on borrowing capacity.

Example 3 — Couple, income 250,000 CHF/year, own funds 25%: combined effect of income and equity

Data

• Gross annual income: 250,000 CHF
• Cost threshold: 83,333 CHF/year (1/3)
• Own funds: 25%
• We are looking for a property value that is compatible with the costs

To keep it simple, we test a property value and check whether it “passes”. Let’s try 1,570,000 CHF.

1) Mortgage

• Own funds = 1 570 000 × 25% = 392,500 CHF
• Mortgage = 1 570 000 – 392 500 = 1,177,500 CHF

2) Theoretical interest

• 1,177,500 × 5% = 58,875 CHF/year

3) Maintenance/charges

• 1,570,000 × 1% = 15,700 CHF/year

4) Portion above 2/3

• 2/3 of 1,570,000 ≈ 1,046,667 CHF
• Portion above = 1,177,500 – 1,046,667 ≈ 130,833 CHF
• Annual amortization ≈ 130,833 ÷ 15 ≈ 8,722 CHF/year

5) Total theoretical costs

• 58,875 + 15,700 + 8,722 ≈ 83,297 CHF/year

Note
You are very close to the threshold. This type of situation is common: a high income “allows” a high property value, but amortization of the portion above 2/3 quickly comes back into play. In a real file, your other expenses (childcare, leasing, taxes, etc.), income stability, and retirement analysis can shift the needle.

The factors that change your borrowing capacity (and common mistakes)

Even with a good method, two households with the same salary can get different results. Here are the main factors that influence the borrowing capacity calculation.

Equity: double effect (lower mortgage + lower amortization)

The higher your equity is:

• the more the mortgage decreases (so theoretical interest decreases),
• and above all, the more you reduce the portion above 2/3 (so amortization decreases).

That’s why moving from 20% to 30% equity can improve your borrowing capacity more than you might expect at first.

Income: type, stability, and existing commitments

Income is not just a number:

• a fixed salary is generally easier to take into account,
• a bonus may be counted only partly depending on the track record,
• self-employed income may require several financial years,
• a second household income can improve capacity, but household expenses (children, maintenance payments, etc.) also matter.

At the same time, existing debts and commitments (leasing, loans, obligations) reduce your room for manoeuvre, even if your “housing” calculation passes.

Property price: the bank may use a different value

In some cases, the lender does not use exactly the price paid, but a reference value linked to its view of the market. This can change the mortgage, the loan-to-value ratio, and therefore your capacity.

The “maintenance” item: a useful rule of thumb, but reality varies

1% is a benchmark, but:

• a house with major short-term works can cost more,
• a PPE may have a renovation fund and charges that change the reality,
• a very energy-efficient property can reduce some costs, but not all.

Direct vs indirect amortization: what it changes (and what it doesn’t)

• Direct amortization : you pay down the debt.
• Indirect amortization : you save into a solution (often a pillar 3a that can be pledged depending on the set-up) while keeping the debt higher.

Depending on your approach and goals (taxes, planning, pension provision), either can be relevant. In terms of “affordability”, the bank will mainly check that the amortization path meets its requirements.

Common mistakes when you ask “how much can I borrow?”

1. Using only the monthly payment at today’s rate
   In Switzerland, the analysis is often based on a prudent theoretical rate. So a calculator based only on the market rate can give an overly optimistic impression.
2. Forgetting maintenance and running costs
   Even if your monthly payment seems low, maintenance and running costs still exist. Ignoring them skews the calculation.
3. Underestimating the effect of exceeding 2/3
   Many files get “stuck” because amortizing the portion above 2/3 takes up a significant share.
4. Underestimating the impact of other debts
   A lease, a personal loan, or regular obligations can change the outcome.

Short answers to other questions about borrowing capacity

Disclaimer: The information and examples on this page are provided for informational purposes only and are based on a deliberately simplified model (theoretical interest rate, flat-rate allowance for maintenance and charges, amortisation of the portion exceeding two thirds, threshold of approximately one third of income). Actual practices vary between banks and insurance companies (income taken into account, charges considered, internal rules, retirement analysis, rounding, etc.).
This page does not constitute a financing offer or personalised advice and contains no promise regarding interest rates. For any decision, have your individual situation reviewed with complete data by a qualified professional.