Take on interest rate risk or protect yourself

The decision between a SARON mortgage (also known as a money market mortgage) and a fixed-rate mortgage depends on a variety of factors, in particular on your personal financial situation, your ability and willingness to take on risk, and the market situation.

Fixed-rate mortgages allow you to plan

With fixed-rate mortgages, the interest rate is fixed for a predefined term, usually 2 to 25 years. This can be seen as "protection against changes in interest rates". Such protection comes at a cost, since it protects you against rising interest rates for years to come and gives you budgeting and planning security. It is important to note that there are considerable price differences between products from the various providers, which include banks, insurance companies and pension funds. The cheapest provider on the market offers an interest rate that is on average 40 to 80 basis points (0.4-0.8%) lower than the market average of all providers.

Exit: Different conditions

If you want to terminate your fixed-rate mortgage early, you will usually have to pay an early repayment charge. This corresponds to the interest that you would have paid up to the end of your fixed term. However, there are significant differences in conditions, and certain providers waive fees if the property is sold. So don't just compare prices, compare the conditions offered by providers, too.

SARON mortgages are considered flexible

With a fixed-rate mortgage, you cannot benefit if interest rates on the market fall. The SARON mortgage is different. It follows the market and thus fluctuations in interest rate - up and down. Depending on the product, the interest rate for mortgage holders usually changes every three or six months based on the compounded Swiss Average Rate OverNight, or SARON for short. This is the average interest rate at which commercial banks lend each other money overnight. Price differences between the providers are due to different margins. A minimum term is often set out in a framework contract for a period of one to three years. However, there are also providers who do not have a minimum term. Instead they simply have a notice period, for example three months, which provides a high degree of flexibility allowing for termination, partial amortisation or a change of product or provider. Looking at the costs over several decades, this form of financing has always been cheaper than a fixed-rate mortgage, but of course much less predictable with regard to budget planning.

Variable-rate mortgages as a niche product

In addition to SARON and fixed-rate mortgages, some providers also offer variable-rate mortgages. They work in a similar way to a SARON mortgage, but the interest rate is determined by the bank and the notice period is usually between one and six months. This form of financing is typically used to finance smaller renovations or to bridge short periods of time (for example, when a property is due to be sold). For longer-term financing, fixed-rate mortgages and SARON mortgages have much more attractive conditions. And with the introduction of SARON mortgages (from 2020), some providers no longer specify a term in their framework contracts making SARON mortgages an attractive alternative to variable-rate options.

Consider your options carefully

If you need a high degree of flexibility or expect interest rates to fall, you should look into SARON mortgages. If you are looking for security and predictability and expect constant or higher interest rates, it is better to opt for a fixed-rate mortgage. It is important to examine your options carefully and, if necessary, to seek professional advice to ensure that you make the right decision for your individual situation. Ultimately, what is important is choosing a mortgage that best suits your financial needs and goals for the long term and not finding the cheapest solution for the short term.