Down payment: definition

The down payment is the share of the property price that you finance without borrowing, using your savings, your 3rd pillar, family gifts, an advance on inheritance, or by pledging your 2nd pillar.

In Switzerland, it is also referred to as equity (own funds), and it plays a central role in obtaining a mortgage. The higher your down payment, the more solid the bank considers your financing, and the more room you have to negotiate the terms of your loan.

In practice, the down payment is used to cover part of the purchase price (generally at least 20%), and sometimes part of the additional costs (notary fees, property transfer tax, acquisition costs), which often cannot be financed through the mortgage. This is the base the bank uses to calculate the maximum loan amount and the level of risk it is willing to take with you.

Key features of the down payment

In Switzerland, the general rule is that the bank requires at least 20 % as a down payment to finance your primary residence. This means that for a property worth 1 000 000 CHF, you must generally contribute at least 200 000 CHF. Out of these 20%, at least 10 % of the property price must come from “hard” own funds: cash savings, savings accounts, securities, pillar 3a, gifts or an advance on inheritance. The remaining 10% may, under certain conditions, come from your occupational pension (2nd pillar), either via an early withdrawal or by pledging it.

Your down payment can therefore be made up of several components:

• your savings (savings account, securities account, cash assets);
• your pillar 3a (withdrawal or pledge);
• part of your 2nd pillar (withdrawal or pledge);
• family gifts or advances on inheritance;
• potentially, the value of another property, pledged or sold to free up cash.

The larger your down payment, the lower the share financed by the mortgage. This has several positive effects:

• the bank takes less risk and is often more flexible on the terms (interest rate, term, mortgage structure);
• your interest costs are immediately lower because you borrow less;
• the well-known “affordability test” (total costs ≈ max 33% of your gross income) is easier to pass because your theoretical mortgage burden decreases;
• you have a better “safety cushion” in case the property value drops or rates rise.

Conversely, a down payment that is too low limits your borrowing capacity and may force you to scale back your budget (property price, location, floor area, etc.). It can also expose you more to a rate increase or a change in circumstances (income loss, separation, retirement). This is why banks look not only at the amount of your down payment, but also its source: they prefer hard, stable own funds over heavy reliance on the 2nd pillar, which significantly reduces your retirement provision.

Finally, your down payment level directly affects the rest of the setup: the more you contribute upfront, the less you will have to amortise later (direct amortisation or indirect) and the more flexible your financial situation will remain over the long term.

Full calculation with your down payment

Let’s take the example of a Swiss property purchase for 1 000 000 CHF.

Scenario 1: minimum down payment

You aim for the minimum required by the bank, i.e. 20 % down payment, or 200 000 CHF. For example:

80 000 CHF comes from your savings and your pillar 3a (hard own funds);
120 000 CHF comes from an early withdrawal from your 2nd pillar.

Your financing then looks like this:

• Property price: 1 000 000 CHF
• Total down payment: 200 000 CHF
• Mortgage amount: 800 000 CHF (80 % of the property value)

Out of these 800 000 CHF, the bank will often structure:

• a 1st-rank mortgage (around 65% of the value, i.e. 650 000 CHF);
• a 2nd-rank mortgage (around 15%, i.e. 150 000 CHF), which must be amortised over 15 years or by retirement.

Your interest costs are calculated on 800 000 CHF. If the average rate is 2%, the theoretical annual interest amounts to around 16 000 CHF. On top of that, you need to add amortisation of the 2nd-rank portion and ongoing costs (charges, maintenance, etc.).

Scenario 2: increased down payment

Now let’s imagine you have 300 000 CHF down payment (30% of the property price):

• 150 000 CHF comes from your savings and your pillar 3a;
• 150 000 CHF comes from your 2nd pillar or a family gift.

Your setup becomes:

• Property price: 1 000 000 CHF
• Total down payment: 300 000 CHF
• Mortgage amount: 700 000 CHF (70 % of the property value)

With the same 2% rate, the theoretical annual interest drops to 14 000 CHF (700 000 × 2%), i.e. 2 000 CHF less per year than in the first scenario. You borrow less, you amortise less of the 2nd-rank portion, and your cost-to-income ratio is more comfortable. The bank is reassured, you have more room to negotiate the rate, and you have more security if rates move or your income changes.

Related articles

• Purchase budget and down payment
• Becoming a homeowner without equity
• Simulate your loan and determine your minimum down payment