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

When buying a home or renewing its financing in Switzerland, comparing a fixed-rate mortgage with a SARON mortgage means looking beyond the advertised rate. The difference concerns how interest changes, as well as the length of the commitment.

A fixed rate makes interest more predictable

A fixed-rate mortgage keeps the agreed rate throughout its contractual term. Rising market rates therefore do not increase that rate, while falling rates do not reduce it. When the term ends, replacement financing may have different conditions. UBS: comparing mortgage models.

This predictability concerns the interest rate. When preparing a housing budget, it remains useful to consider capital repayments, fees and maintenance expenses separately. A monthly payment shown on its own can combine different elements.

SARON is a benchmark, not the full mortgage rate

SARON measures an overnight rate in the Swiss market for secured lending in francs. Its administrator, SIX, also publishes compounded rates covering several periods: daily values are combined using compounding. The compounded rate for an elapsed period is therefore not the same measure as the SARON value for a single day. SIX: how SARON works.

A contractual margin is added to this benchmark. As an example, BCN uses a three-month compounded SARON rate plus a margin, applying a zero floor to the benchmark if it is negative. Its products have different terms and margin conditions. These features illustrate why the specific offer needs to be read carefully; they should not be assumed to apply to every lender. BCN: contractual features of SARON mortgages.

Understand the SNB’s role

The Swiss National Bank seeks to keep SARON close to its policy rate. This influences monetary conditions that feed through to financing. However, the announced policy rate is not the rate charged to a homeowner: the calculation period and the loan’s terms also play a part. SNB: implementing monetary policy.

Compare offers on the same basis

Gather offers for the same loan amount, with the same starting date and repayment schedule. Request a breakdown separating interest, capital repayments and fees. For SARON, clarify the observation period, when the interest charge becomes known and whether the margin can be changed.

Then use several interest-rate assumptions without treating them as forecasts. On a constant balance of CHF 500,000, one additional percentage point represents CHF 5,000 in interest over a full year, excluding fees. This arithmetic example translates a difference in rates into an actual expense and allows its effect to be compared over different periods.

Look at how the contract ends

Ending a fixed-rate mortgage early can trigger a substantial penalty. A SARON loan also comes with termination conditions that need to be examined. UBS: mortgage terms and termination.

Before signing, ask how the lender would handle a property sale, an additional capital repayment or a switch to another lender. Have the notice periods and method for calculating any costs documented. You will then have a comparison that connects the price of the financing with the practical commitments it creates.

Financing also needs to be considered in relation to the property itself. Explore the factors discussed in our guide to the Swiss residential property market.