How does losing your job impact your mortgage?

Unemployment needn't necessarily jeopardise a mortgage. However, borrowers must take precautions to ensure that they can make their monthly loan repayment instalments and the associated interest as well as all their living and household costs, even if they suffer a loss of income.

This also applies, for example, to couples who reduce their working hours in order to look after their newborn child.

Gaps in your household budget

If you lose your job, unemployment insurance will initially step in to help, covering 70-80% of your last salary for a limited period.

In Switzerland, unemployment insurance only insures incomes of up to CHF 148,200 a year. This means that losing a job with a higher salary leads to a proportionally greater loss of income. This often reduces the amount of disposable income and pokes a noticeable hole in the household budget.

Without sufficient reserves, it gradually becomes more and more difficult to make your monthly mortgage payments.

Two options

There are two options for safeguarding your home financially in such situations:

Build up a nest egg: If you want to take out a mortgage, you should already have built up enough of a financial cushion to cover at least three to six months' expenses. This helps you to bridge short-term bottlenecks and continue making payments to lenders.

Mortgage insurance: Home-owners can insure their mortgage with special life insurance policies. These policies cover the loan repayment instalments and interest in the event of unemployment or a temporary inability to work, although the durations and benefits differ from one contract and insurer to the next.

This keeps your household budget in balance and minimises the risk of losing your property. Migros Bank mortgage insurance also covers death and permanent disability.

Keep an eye on your finances

It is important to review your financial situation regularly. If you make provisions in good time, you can afford to buy a home without having to tighten your belt – even in difficult times.

In an emergency, those affected should also talk to their bank quickly to find solutions together, such as temporarily reducing instalments or adapting the mortgage.

In the worst case scenario, you can also sell your home again. There is very little chance of losing money on such a deal. After all, residential property prices are currently only heading in one direction: upwards.

Marcel Müller is a Migros Bank customer advisor and a mortgage expert.