Variable mortgage rates in Switzerland: definition

Explanation

With a variable mortgage rate based on SARON (Swiss Average Rate Overnight), the bank calculates your interest rate as the sum of a money market reference rate and a fixed margin that depends on your profile (property value, loan-to-value ratio, creditworthiness, etc.). SARON reflects short-term conditions on the Swiss money market, so it can fluctuate frequently. In practice, your mortgage rate is adjusted periodically (for example every 3 or 6 months) based on the average SARON over a given period. This type of mortgage is more suitable for borrowers who accept a certain volatility in their payments in exchange for a potentially lower interest rate over the long term, while being aware that if rates rise sharply, their interest costs can increase significantly.

Concrete example

Imagine you are financing a home in Switzerland with a mortgage of CHF 700,000 at a variable rate of SARON + 1.20%. If the average SARON for the period considered is 0.30%, your effective rate for this period will be 1.50% (0.30% + 1.20%), which corresponds to CHF 10,500 in interest per year, or about CHF 875 per month. If, a few months later, SARON rises to 1.00%, your mortgage rate will increase to 2.20% (1.00% + 1.20%) at the next adjustment date, and your annual interest will rise to around CHF 15,400. Conversely, if SARON falls to 0.00%, your rate will drop to 1.20%, which reduces your interest charges for the following period.