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The perfect mortgage
In Switzerland, three main mortgage models are used for financing. These are the fixed-rate mortgage, the SARON mortgage and the variable-rate mortgage. What are the characteristics of the different mortgages? Find out here.
Fixed interest rate
Periodic interest rate adjustments
No planning certainty
Variable interest rate around 2.5% p.a.
Currently the most expensive mortgage type
The fixed-rate mortgage is the most widely used financing option for real estate in Switzerland. This type of mortgage has two specific characteristics:
- The term of the mortgage is determined and can range from 2 to 25 years
- The interest rate is fixed for the whole term of the mortgage
With the fixed-rate mortgage, thanks to the fixed term and fixed interest rate, it is possible to clearly calculate how high the annual interest burden will be. This means that the fixed-rate mortgage offers planning security and is therefore ideal for mortgage borrowers who do not want to be exposed to changes in the financial budget due to short-term interest rate changes. The interest rate structure of fixed-rate mortgages is very simple to explain: the longer the term, the higher the interest rate. Due to this fact, it is essential to compare different financing offers for the fixed-rate mortgage model. Even seemingly small differences in the interest rate can mean a large savings potential on the total mortgage amount and over the term of the fixed-rate mortgage.
The Saron (former Libor) mortgage is a mortgage model that is particularly attractive in times of a stable or falling interest rate environment. The interest rate of the Libor mortgage is calculated from the Libor interest rate and a margin. The margin is calculated differently depending on the financial institution and is based on the individual creditworthiness of the customer. In principle, the Libor mortgage is a fixed-rate mortgage with a short term of a few months, for which the interest rate is adjusted at defined intervals. If you as a customer opt for the Libor mortgage, you have the choice of the intervals at which this interest rate adjustment is to be made. Typically, a Libor base of 3, 6 or 12 months is available. A Libor mortgage contract is usually signed for a fixed term of between 2 and 6 years. Within this term, most banks offer a switch to a fixed-rate mortgage.
In recent years, the Saron mortgage has been the most favorable form of financing on average. In addition to this resounding argument, there are nevertheless several things to consider as a mortgage borrower:
- The Saron mortgage is subject to short-term interest rate fluctuations.
- There is no planning security
- Normally, the Libor mortgage offers lower interest rates than a fixed-rate mortgage
LIBOR becomes SARON
Libor (London Interbank Offered Rate) is the rate at which banks lend money to each other. There are no actual transactions behind Libor, only agreements that the banks make among themselves. This lack of transparency has made Libor vulnerable to manipulation in the past. The SARON (Swiss Average Rate Overnight) is based on executed transactions and is therefore much more resilient and transparent. From January 1, 2022, the interest rate for money market mortgages in Switzerland will no longer be determined by Libor, but by SARON. As a result, the Libor mortgage will be renamed the SARON mortgage from the end of 2021 at the latest.
The SARON has already been in use by the SNB since 2009, but was not used as the prime rate for money market mortgages. Nevertheless, it has always remained at about the same level as Libor in recent years. Most experts expect this to remain the case, at least in the medium term. For Libor customers, therefore, the changeover will hardly bring about any noticeable changes.
HYPOHAUS will work with you to determine your personal mortgage profile. The HYPOHAUS mortgage profile helps you as a customer to find out whether the mortgage model of a SARON mortgage is suitable for you. Depending on the profile that results from the nine structured questions, HYPOHAUS recommends the appropriate mortgage model.
The variable mortgage does not have a fixed term. It is only subject to a notice period, which is usually three or six months. The interest rate of the variable mortgage rises and falls with the general interest rate level. In a low interest rate environment, in which we currently find ourselves, the variable mortgage is the most expensive of all three mortgage models. For this reason, the variable mortgage has been used very rarely in recent years and only in special cases. For example, a variable mortgage can make sense if you as a customer want to sell your home soon or want to repay the mortgage for another reason. In most cases, the variable mortgage has no minimum amount and can therefore also be used for very small installments, for example in the course of a renovation.
How does the variable mortgage work?
The bank sets the interest rate at its discretion and is guided by the general interest rate level and the interest rates of other banks. Depending on the fluctuations in the interest rate market, the bank may adjust the interest rate 2-3 times a year.