Build your own fixed rate mortgage

Hi all,

As recently mortgage rates have notably increased, while SARON remains low, I was wondering whether someone has explored the option of taking a SARON mortgage and hedging funding risk? Assuming the mortgage is linked to 3-month compounded SARON, the cleanest hedge to me seems shorting and rolling a 3-month SARON futures. There seem to be two products from ICE and Eurex respectively (SA3 and FSR3). Unfortunately I cannot find them on IBKR (but I never find anything on IBKR, ie, that does not necessarily need to mean one cannot trade them on IBKR
). Shorting 1 contract allows to fix the rate of a CHF 1 Million SARON 3M loan.

Has anyone done/ considered doing this? If so, where can these futures be traded (IBKR?) by a private investor and what is the minimal quantity? Is it really possible to purchase 1 contract?

Would really appreciate any help on this!

Edit: not sure whether the futures roll works as I thought. Thinking about it I believe one would need to sell 4*10 futures to approximately hedge the risk of a SARON mortgage over 10 years and then decrease this number by 1 every quarter. This hedge would be pretty imprecise also. Overnight indexed swap on SARON would be the right instrument but even less likely accessible for private investors


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Looking at swap rates shown by money park (I presume SARON OIS), as well as their mortgage rates (fixed and float) it actually seems that banks do not overprice fixed mortgages (compared to float ones). This is somewhat surprising to me as I thought fixed rate mortgages are something they could sell with a premium, as home owner try to lock in the borrowing rate. So it seems no real possibility to save anything here even with access to professional hedging tools :disappointed_relieved:

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Last week I got a 0.58% SARON and 1.55% 5y from Money Park.
Are you negotiating with them now?

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Not meant as a recommendation but I’d go for SARON if you can financially bear the (in my view rather unlikely) risk of rates increasing notably over a very short period of time. When I thought about this back then, the only advantage I saw with the fixed rate offers is planning certainty until its maturity. However you have all the refunding risk then!

SARON is actually quite attractive now. If I understood correctly most banks floor the SARON rate at zero before applying the margin. If that’s the case, overnight rates would need to increase by around 1.75% (is, 7x25 bp rate hikes!) for the SARON costs to exceed the ones of the fixed-term offer: margin (0.58%) + current SARON (-0.7%) + 1.75% = 1.63%. Plus it needs to happen very fast as SARON is a lot cheaper right now (0.58%). Would not be my main scenario. Swiss rates are tightly coupled to EUR rates and such dramatic rate hikes would bring back the Euro debt crisis, ie, there will be tremendous political pressure against this.

5 years is pretty short also. Securing funding costs over 10+ years may have some benefits, but not convinced that the same is true for such short horizons.

Just my view, no advice

I fully agree with your view. You need to be aware of the SARON contractual conditions thought, in order to have the flexibility to switch product or change institution. My view is that fixed rates will drop again at some point then switching product could be fine but I have seen some SARON’s notice period of 13 months(!)
I found this flexible SARON 1m notice period for the customer, 13m for the bank.

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The notice period is meant when terminating the contract.

If you want so switch in a fixed term mortgage you can do it within couple of days (for some bank by end of the next/nearest quarter).

If the Saron rises, the swap has risen in the meantime; you won‘t outplay the game.


That’s clear. But keep in mind you would be able to switch products within the same institution which takes leverage out of your future negotiation.
Being able to terminate in a shorter time allows you to find the lowest rate in the market at any time and decide.