Anyone purchasing a house or condominium in Switzerland is usually faced with the choice between a fixed-rate mortgage and a SARON mortgage. Which option makes sense depends on your personal and financial situation, your long-term plans, and your ability to withstand interest rate fluctuations.

Those who value predictable financing costs tend to opt for a fixed-rate mortgage. For households with sufficient financial reserves, a SARON mortgage is a more suitable option. Money market mortgages have historically been cheaper, but they offer no guarantee of lower financing costs in the future, explains the Swiss Homeowners Association (HEV).

Consider Changes in Your Life Situation When Choosing a Fixed-Rate Mortgage

With a fixed-rate mortgage, the interest rate remains unchanged for the agreed-upon term. Terms typically range from two to ten years; depending on the lender, terms of fifteen years or more are also possible. Short terms carry the risk of renewal during a period of high interest rates. Long terms protect against interest rate hikes but limit flexibility and can result in high costs if the mortgage is paid off early. In addition, longer terms generally—though not always—carry higher interest rates and are therefore more expensive. In addition to current interest rate levels, you should therefore also consider a potential sale, a larger principal repayment, retirement, or other changes in your life situation.

The SARON mortgage is based on the average interest rate

The interest rate on a SARON mortgage is based on the SARON. This reflects the average interest rate at which banks lend money to one another overnight on the Swiss money market. The bank adds a margin to this rate. If the SARON rises, financing costs also increase. Depending on the provider, an interest rate cap can be agreed upon for an additional fee. Such a solution is referred to as a cap mortgage.

Reducing Risks

Many homeowners split their financing into several tranches with different terms or mortgage models. One portion can be structured as a fixed-rate mortgage, while another can be a SARON mortgage. This reduces the risk of having to refinance the entire loan at an inopportune time. However, different maturity dates can make switching providers more difficult and limit flexibility.

Mortgage interest rate trends are difficult to predict

The trend in mortgage interest rates cannot be reliably predicted. The SARON reacts relatively directly to changes in the SNB’s key interest rate. The interest rates on fixed-rate mortgages are more closely aligned with long-term capital market rates, which already factor in expectations regarding future key interest rates, inflation, and economic conditions.

It’s worth comparing different providers

It’s worth comparing different providers, as interest rates and contract terms can vary significantly. For fixed-rate mortgages, the interest rate and term are particularly important; for SARON mortgages, the margin, framework term, and the option to switch to a fixed-rate mortgage are key. A longer framework term protects against short-term adjustments to the margin but ties you to the provider for a longer period.

For both models, the terms for early termination—particularly any prepayment penalty—should also be reviewed. “Therefore, the decisive factor is not just the currently lowest interest rate, but financing that suits your personal and financial situation in the long term,” advises Markus Meier, Director of HEV Switzerland.