Fixed-rate or SARON mortgage in Switzerland: understanding the comparison

When buying a home or renewing a mortgage in Switzerland, the advertised interest rate naturally draws attention. Yet two offers covering the same apartment can create very different commitments. Fixed-rate and SARON mortgages primarily describe two ways of determining interest; they do not explain every part of the agreement.

A useful comparison therefore starts with amounts, a timetable and contractual clauses. It can be undertaken without betting on the Swiss National Bank’s next decision. The examples below are deliberately hypothetical: they explain mechanisms and help prepare precise questions, without selecting a mortgage model for an individual situation.

What a fixed rate actually stabilises

With a fixed-rate mortgage, the agreed rate remains unchanged for the contractual term. Market movements therefore do not alter that rate during the period. Raiffeisen presents this stability and restrictions on changing mortgage models as features of its fixed-rate product. Fixed-rate mortgage characteristics.

That visibility concerns the rate, rather than every housing expense. If the outstanding principal decreases, interest calculated on that principal changes too. Building work, condominium charges and energy expenses can develop independently of the mortgage. A budget containing only interest would give an incomplete picture of the commitment.

Maturity also needs a place in the timetable. A five-year agreement establishes a rate for five years; it provides no certainty about the offer available afterwards. Instead of implicitly adding another five years at the same price, a simulation should show that second period as a separate assumption.

From daily SARON to mortgage interest

SARON is an overnight reference originating in the Swiss market for secured lending in francs. SIX administers it and also publishes compounded rates covering different periods. Compounding combines daily observations; a single day’s rate and the compounded rate for a period are therefore not interchangeable. SIX methodology and reference rates.

BCN describes three-month compounded SARON plus a margin, with a zero floor on a negative reference. This contractual example does not represent every offer. BCN’s product terms.

Hypothetical numerical example: a reference of minus 0.20% and a margin of 0.90% produce 0.90% with that floor, versus 0.70% without it. The clause changes the result; these values are purely educational.

Keep three timetables separate

Distinguish the period used to observe rates, the period to which interest relates, and the payment date. A BCF factsheet dated 1 September 2023 illustrates the variety: it describes a SARON model fixed at the end of the period and a SARON Classic model fixed at the beginning. This document explains a difference in operation; it is not a current offer. BCF’s two-model factsheet.

To read your own proposal, draw a line from signing to the first debit. Mark when observation begins, when the applicable rate becomes known and when payment occurs. If those dates are unclear, request an example statement completed with hypothetical values.

Show the contractual term on a separate line. A rate changing quarterly does not necessarily mean the loan can be repaid or transferred freely every quarter. The calculation frequency describes the price of borrowing; notice requirements and maturity describe the commitment that has been signed.

Understand the SNB’s role without shortcuts

The Swiss National Bank uses its monetary instruments to keep SARON close to its policy rate. It therefore influences the reference market, but its announcement does not establish the complete rate charged on a home loan. The SNB’s explanation of monetary policy implementation.

To interpret an announcement, return to the timetable and the contractual formula. The new monetary setting, observations already accumulated and the margin are separate inputs. Keeping them distinct makes it possible to request a verifiable calculation, rather than assuming an announcement must appear immediately and in full on the next statement.

Translate percentages into francs

On constant principal of CHF 600,000, a hypothetical total annual mortgage rate of 1.5% produces CHF 9,000 of interest over a full year. At 2.5%, the figure reaches CHF 15,000; at 3.5%, CHF 21,000. Each additional percentage point represents CHF 6,000 a year, or CHF 500 a month on average.

These amounts exclude amortisation, charges, taxation and housing expenses. They are neither offers nor forecasts. Their purpose is to turn an abstract difference into a cash-flow change that can be examined within a budget.

To compare a variable mortgage rate, including the lender’s margin, with a fixed rate over a year, the first quarter’s rate is insufficient. In a simplified hypothetical scenario with four equal periods, successive total annual rates of 1.5%, 2%, 2.5% and 3%, including the margin and after applying any floor, average 2.25%. Applied to constant principal of CHF 600,000, this produces CHF 13,500 of interest: the same total as a hypothetical fixed rate of 2.25%.

The equal final totals nevertheless conceal different payments over time. The first period appears cheaper and the final period more expensive. An actual statement would need to apply the contractual day-count conventions and dates. The exercise explains why comparing a fixed rate with only the first variable observation would be incomplete.

Compare offers covering the same need

Use the same principal, starting date and amortisation schedule. Then separate interest, principal repayments and charges. Otherwise, an offer might appear cheaper simply because it repays less debt over the period being examined.

Consider another hypothetical example: two proposals each charge CHF 12,000 in annual interest. One requires CHF 6,000 of principal repayment, the other CHF 9,000. Cash outgoings amount to CHF 18,000 and CHF 21,000 respectively, but the CHF 3,000 difference is not additional interest: it is additional debt repayment.

If several mortgage portions are being considered, put their maturities on the same timeline. Examine what would remain committed at each renewal and clarify the conditions for changing lender. The objective is to understand the financing as a whole, rather than evaluating each line in isolation.

Examine the exit before entering

Early termination can trigger compensation. UBS explains that its calculation depends on factors including principal, remaining term, comparison rates and contractual provisions. The bank also notes that a SARON mortgage can carry a notice period. The amount therefore cannot be established using a universal tariff applying to every lender. Early repayment compensation explained.

Ask how a sale, an additional repayment or a transfer to another home would be handled. Have the available options, deadlines and calculation method set out in writing. Simulated annual savings of CHF 2,000 are insufficient to evaluate a switch while its exit costs remain unknown.

The comparison ultimately rests on information that can be checked: principal, periods, several interest-rate assumptions and documented commitments. To connect that assessment with the home itself, continue with our examination of the Swiss residential ownership market, its indices and the characteristics to review for each property.