Sample Calculation: Inheriting a Property
Manuela would like to take on an apartment that she inherited together with her siblings. How can she finance the apartment and buy out her brothers?
Three siblings Andreas (48), Manuela (45), and Ulrich (38), inherit an apartment from their deceased parents in a renovated old building in the city, in addition to bank deposits and securities totaling CHF 150,000. Andreas has no interest in the apartment because he already owns a house. Ulrich has settled in France and would prefer his share of the inheritance to be paid out. Manuela and her husband live in the same city in a much smaller apartment and would like to take on the parents' apartment.
Market Value: CHF 1 Million
The property has been valued at CHF 1 million. There is a mortgage of CHF 400,000 on the property. The entire estate is therefore CHF 750,000 net, or CHF 250,000 per sibling. The two brothers share the bank deposits and securities, meaning they each receive CHF 75,000. Manuela takes over the apartment including the existing mortgage and needs to pay her brothers CHF 175,000 so that all three siblings ultimately receive their CHF 250,000 share of the inheritance. However, Manuela does not have enough savings for this equalization payment. She therefore wants to increase the mortgage on the property.
Increasing the Mortgage
To ensure that the owner of a property is safely covered in the long term, credit institutions use an interest rate of 5% to calculate the affordability of mortgages and also take into account maintenance and ancillary costs. Manuela can increase the mortgage from CHF 400,000 to CHF 650,000. Including ancillary costs, this represents a monthly expense of CHF 3,540 – one-third of Manuela and her husband's combined income.
By increasing the mortgage by CHF 250,000, and with a further CHF 100,000 from their own assets, Manuela and her husband can buy out her two brothers. The mortgage is only 65% of the market value. This eliminates the requirement for monthly repayments and the long-term affordability calculation adds up.
With this financing, Manuela and her husband can live in the much larger and more attractive apartment at a considerably lower cost than before.