SARON Mortgage: The variable rate for your home loan

Want to take advantage of market interest rates for your mortgage? The SARON-linked loan is the ideal mortgage! This solution, both attractive and technical, is however not suitable for all profiles or projects. Our experts guide you to determine if SARON is the right option for you, with practical advice to optimize your financing, from negotiation to daily management.

What is a SARON mortgage

A SARON mortgage is a home loan whose interest rate is indexed on the SARON (Swiss Average Rate Overnight), the reference rate for the Swiss money market. Unlike a fixed-rate mortgage, the rate of a SARON mortgage fluctuates constantly, following the variations of short-term rates.

How SARON mortgages work

Specifically, the applicable rate is revised at regular intervals (every 1, 3, 6 or 12 months depending on the contract). At each due date, it is recalculated based on the average SARON over the past period, plus a fixed bank margin. The borrower thus quickly benefits from a rate drop but also suffers from increases.

The big advantage of SARON is its transparency. Calculated daily by the Swiss Exchange based on real transactions, it accurately reflects the financing conditions of banks. No more manipulations and conflicts of interest that tarnished the Libor!

How is the SARON rate calculated?

SARON expresses the average interest rate on overnight interbank loans in Swiss francs. Each day, the Swiss Exchange (SIX) recalculates it according to a robust and transparent procedure:

• Collection of all overnight financing transactions recorded in the SIX Interbank Clearing system (interbank loans, repo operations, etc.)
• Removal of outliers (< 25th or > 75th percentile) to avoid distortions.
• Calculation of the weighted average rate, rounded to the nearest 1/100th (2 decimals).
• Publication of the daily fixing on financial screens, usually each evening around 6 pm but no later than noon the next day.

Banks and borrowers thus have a clear and indisputable rate reference. Bank margins are then calculated either by adding a fixed spread to this SARON rate, or by applying a multiplier (e.g. SARON x 1.2).

Factors influencing the SARON rate

SARON directly reflects monetary and liquidity conditions in Switzerland. It is notably influenced by:

• The SNB’s interest rate policy: the key rate sets the tone for money market rates. When negative as since 2015, SARON also evolves in negative territory.
• Banks’ liquidity management: in case of liquidity stress (such as during COVID), banks refinance at higher rates, pushing SARON up. Conversely, excess liquidity pulls SARON down.
• Switzerland’s growth and inflation pace: overheating tends to tighten monetary conditions, recession to ease them.
• Global economic conditions and geopolitical or health shocks: SARON reacts to changes in risk aversion on financial markets.

In short, when choosing a SARON mortgage, you must keep a close eye on the Swiss economic situation and monetary policy, and have strong resilience to withstand inevitable fluctuations.

Who is the SARON mortgage for?

This type of mortgage is especially suited for borrowers who:

• Are comfortable with some level of risk: a variable rate necessarily exposes to potential increases, even though decreases are also possible. You must be able to absorb payment fluctuations, directly linked to the evolution of Swiss mortgage rates.
• Anticipate a stable or lasting decrease in rates: during a long cycle of expansive monetary policy, SARON is more likely to stay low, even negative. Short-term rates react first to central bank interventions.
• Value flexibility and transparency: with a public market rate and (usually) fixed bank margins, the borrower knows exactly what they pay. And can more easily renegotiate or transfer their loan.
• Seek a short-to-medium term solution: ideal for transitional situations (switching from one property to another) or speculative (quick buy-resell). Less visibility than a fixed rate, but more flexibility.

Conversely, the SARON mortgage is riskier for those borrowing at the maximum of their financial capacity or who need strong budget predictability (young households, retirees, long-term financing). A fixed rate / SARON mix (by tranche) is often recommended.

How to choose the right mortgage?

The SARON-indexed mortgage appeals by its transparency, flexibility, and potentially lower cost than a fixed rate. But this solution is not suitable for everyone: its variable rate involves some risk and more active management.

Advantages of a SARON mortgage loan

• Transparency of the underlying rate (SARON) calculated and published by an independent entity (SIX)
• Responsiveness to decreases in key rates and the money market
• Bank margins often lower than fixed (the interest rate risk is on the client)
• Flexibility: possibility to change rate or bank without fees (no penalties)
• Facilitated exit to sell or repay the property
• Solution suited for short or speculative projects

Disadvantages of a SARON mortgage loan

• Variability of the final rate and monthly payments, impossible to budget precisely
• Exposure to potentially sudden rate hikes (interest rate risk)
• Difficulty in tracking daily SARON variations
• Need to have financial margins to absorb fluctuations
• Complexity of a revisable rate vs a fixed one
• Psychological pressure linked to continuous changes in the interest rate environment

The right choice depends on your risk tolerance, your view on the Swiss mortgage rates evolution, your investment horizon and your financial capacity to handle fluctuations. For an informed decision, a personalized audit with an expert is highly recommended.

Managing your SARON mortgage properly

Study your project and financial situation

Before getting started, you must carefully study:

• The characteristics of your real estate project: amount and duration of financing, contribution capacity, potential capital gain, likely risks…
• Your risk tolerance: acceptable level of uncertainty, ability to bear rate fluctuations, backup plans in case of sudden increase…
• Your safety margins: available savings, stable income sources, fixed expenses…
• Your life plans: career change, new child, upcoming retirement… all elements impacting your future repayment capacity.

The SARON mortgage model is not a game of chance, but it carries a degree of unpredictability that must be managed over time. Psychologically and financially.

Anticipate the costs

The costs associated with a SARON mortgage can be significant. Besides the interest (which is very variable!), you also need to consider:

• Application fees (up to 500 CHF)
• Account maintenance fees (100 to 500 CHF/year)
• Rate revision fees (depending on frequency)
• Possible non-usage commissions
• Possible direct or indirect amortization fees

Few banks offer an “all-in” package for SARON mortgages. And negotiating fees is often harder than with a fixed rate. All the more reason to carefully read the fine print!

Plan a budget to anticipate rate fluctuations

With a SARON mortgage, it is difficult to predict your monthly payments in advance. Hence the importance of building a financial buffer to absorb variations. Our advice:

Start from a reference interest rate (for example SARON + 1%) and calculate the corresponding monthly payments.
Save each month the difference between this “target” rate and your actual rate (in case of a decrease).
Use this “cushion” to cover any potential rate hikes.
Periodically renegotiate your margin to neutralize SARON fluctuations.
Set a rate limit beyond which you switch to a fixed rate (e.g., if SARON exceeds 1%).

The idea is to smooth your savings effort over time. And avoid being “dry” in case of a rate surge.

Change strategy and consider refinancing depending on the context

The great strength of the SARON mortgage loan is its flexibility. Nothing prevents you, along the way, from modifying your financing plan:

• Extend or shorten the rate period (from 1 to 12 months) according to your expectations
• Renegotiate your bank margin (extra cost vs SARON) to improve your final rate
• Replace a SARON tranche with a fixed tranche in case of trend reversal
• Transfer your loan to another bank offering better conditions

A combined mortgage (mixing fixed and variable rates) thus allows you to continuously adjust your strategy. But it requires regular monitoring of market conditions. And support from a specialist familiar with this type of arrangement.

Conditions to obtain a SARON mortgage

Prerequisites

A file for a SARON mortgage is processed like any mortgage application. The banks’ prudential rules apply in the same way:

• Minimum down payment of 20% (including 10% in cash)
• Maximum theoretical charge of 33% of income
• Firm purchase commitment or recent appraisal value
• Borrower’s age allowing repayment before retirement
• Salary domiciliation in the lending bank is appreciated

Furthermore, the bank will carefully assess the borrower’s “resilience” to rate fluctuations: available savings, potential rental income, job stability, etc. A “stress test” at +3% is often applied.

Minimum amount

Banks’ interest in “small” SARON financings (< 200 kCHF) varies. Some appreciate the product’s flexibility for atypical projects. Others consider the risk and administrative burden disproportionate.

Above 500 kCHF, SARON fully competes with fixed-rate mortgages. Its strengths (responsiveness, transparency, flexibility) become strong commercial arguments. But beware of too complex a structure.

Documents required to apply for a SARON mortgage

The required paperwork is standard

• Identification documents (passport, family record book)
• Proof of income (pay slips, tax notices)
• Bank and savings account statements (last 3 months)
• Proof of personal contribution (savings, pension fund, donation)
• Sales agreement, rental status, value estimate
• Detailed forecast budget with unfavorable rate scenario
• Overall asset analysis (other assets, debts, insurances)

A solid file is the key to a successful negotiation. Banks are sensitive to the quality and transparency of the information provided.

Acceptance of your file

The decision process varies depending on the bank and client profile. Generally, expect 3 to 6 weeks between file submission and firm offer. If additional documents are requested, it may take longer.

The acceptance rate for SARON is slightly lower than for fixed rates, due to increased risks. Support from an experienced broker helps optimize your chances and speed up processing. Each bank has its own specifics.

Need advice?

Get your mortgage with our experts!

A SARON mortgage is a complex and technical product. Variable by nature, this type of loan requires continuous monitoring and decision-making. The slightest mistake can be costly over time. Only an independent expert can guide you calmly through this maze.

Our specialists support you at every step:

• Thorough audit of your situation and objectives
• Personalized recommendation: SARON, fixed or combined
• Preparation of a simplified and “bankable” file
• Negotiation of the best bank margins
• Handling administrative formalities
• Regular follow-up and alerts on market opportunities
• Periodic renegotiations of conditions

All at no cost to you! Our fees are covered by the lending bank. So don’t hesitate any longer!

Simulate your mortgage loan

To see more clearly, simulate your loan for free with our mortgage calculator! In just a few clicks:

• Estimate your maximum borrowing capacity
• Compare monthly payments according to rate type (fixed, SARON, combined)
• Project the total loan cost according to different rate scenarios
• Optimize your financing plan (tranches, durations, amortization)
• Identify potential savings related to your situation

A real decision-making tool. So go for it: your tailor-made mortgage loan is just a click away!

For all details, consult the SIX-Group website, the administrator of the SARON reference index.