Mortgage rates in Switzerland [2024]

I am examining the prevailing mortgage interest rates. According to Money Park, SARON appears to be the more expensive option at the moment. I had always assumed that SARON would be the cheapest option. Could someone clarify why currently the fixed-term rates are lower? @Cortana ?

Depends on the interest rate curve; this can obviously change based on the market.
Swap rates are pricing in a decreasing Saron rate, therefore, fixed mortgages are lower (for the moment).

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Personally I think it’s rather meaningless to compare rates for different durations. Instead, you can try to compare them with “free market” interbank rates to determine the markup in each case.

Here I have started to sum up the sources for the latter:

P.S. another reference I use is the best interest rate of savings account (duration equivalent of SARON) and of medium term notes (usually Cembra), which are duration equivalents of fixed term mortgages. These are the best rates that you can earn as an individual investor.

P.P.S. My first impression from these data after I made a quick comparison once, is that for durations longer than 5-6 years, the markup really goes up.

I feel that people were really missing the woods for the trees in this thread. 0.86% is a great rate and you have it locked in for 10 years? Why were people not just grabbing this with both hands?

Sure, if rates stayed low for 10 years then you’d pay 2.6k more each year on $1 million. But at current rates, you’re now paying 14.9 more per year wiping out 5.7 years of the theoretical savings each year it continues and probably a lot more stressful to boot.

We had historically low interest rates and the cost of insuring against rate rises was low. Just take the gift that’s being handed out to you!

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Thank you @xerox5003 @Dr.PI - Does it mean the marked (banks, institutions, etc) anticipate a decrease in SARON rates? I’m considering purchasing a property and am currently unsure about the best option. I had the free consultation with Money Park, during which they suggested that I might opt for a 2-year SARON plan and reassess later. By combining my personal funds and pledging my 2 and 3 pillar, I will be able to meet the 33% requirement, thus eliminating the need for amortization

Comparis is showing the following. No idea why the quoted SARON rate is so different

I suppose recency bias and the fact that they got greedy and perhaps felt it could keep falling. Absolutely crazy low rate!

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It is hard to tell, what the “best” option is - you definitely can tell that afterwards :smiley:
But yes, the analysts are expecting lower rates towards summer/autumn 2024. If you trust them and you have a good gut feeling, you can stay in Saron and then switch into a fixed term mortgage - maybe the rates are better in five, six months?

I fixed my mortgage in 2019. Honestly, I didn’t even bother looking at SARON. I was just looking for the best 10 year fix and also whether I could extend beyond 10 years without increasing rates too much.

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1.69% the current SARON rate and the 2.29% above is including SARON + 0.6% uplift, is my guess. I’m very risk taking with some investments but when it comes to primary domicile, even ~1.8% seems fair.

Exactly, the problem with SARON is the uplift (part for the bank) normally around +0.4 - 0.7. Making then worst option than the fix rate.
Currently, you can get offers around 3-5 years fixed from 1.75 to 2, and SARON is 2-2.4. So it needs to drop to less than 1% to start to pay out somehow.

Just posting this here for those doubting SARON…

Time Span (10 years) Saron Mortgage Cost Fixed Mortgage Cost Advantage in Favor of Saron Mortgage
1996 to 2006 CHF 132,000 CHF 297,000 CHF 165,000
1997 to 2007 CHF 137,000 CHF 273,000 CHF 136,000
1998 to 2008 CHF 142,000 CHF 229,000 CHF 87,000
1999 to 2009 CHF 136,000 CHF 203,000 CHF 67,000
2000 to 2010 CHF 121,000 CHF 264,000 CHF 143,000
2001 to 2011 CHF 108,000 CHF 250,000 CHF 142,000
2002 to 2012 CHF 102,000 CHF 255,000 CHF 153,000
2003 to 2013 CHF 101,000 CHF 195,000 CHF 94,000
2004 to 2014 CHF 98,000 CHF 218,000 CHF 120,000
2005 to 2015 CHF 93,000 CHF 187,000 CHF 94,000
2006 to 2016 CHF 85,000 CHF 183,000 CHF 98,000
2007 to 2017 CHF 71,000 CHF 206,000 CHF 135,000
2008 to 2018 CHF 57,000 CHF 222,000 CHF 165,000
2009 to 2019 CHF 54,000 CHF 186,000 CHF 132,000
2010 to 2020 CHF 53,000 CHF 176,000 CHF 123,000
2011 to 2021 CHF 55,000 CHF 166,000 CHF 111,000
2012 to 2022 CHF 57,000 CHF 109,000 CHF 52,000
Average of all 10-year periods CHF 94,000 CHF 213,000 CHF 119,000

Notes on the table: Fixed-rate mortgage: It is assumed that a fixed-rate mortgage was taken out at the beginning of the ten-year period and that the interest rate is then fixed for the entire ten-year period (this corresponds to the character of a fixed-rate mortgage, it makes no sense to use the average here). Saron mortgage: The average interest rate for the respective ten-year period is used (monthly data). The costs therefore reflect the actual costs incurred if someone had a Saron mortgage (formerly Libor mortgage or equivalent predecessor model) in the amount of CHF 500,000 during the entire ten-year period.

Source: Festhypothek oder Saron-Hypothek - Was ist besser? (hypotheke.ch)

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Then again, rates have been in a 40-year bear market since the early 1980s, not just in the US.

The older amongst us may remember times were quite different in the 1960s/ 1970s:


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The yield curve is inverted, which does not happen too frequently. If it does, it forecasts recession with quite some certainty.

Past performance…
 

This highlights how people lost ‘situal awareness’ of where we were with interest rates. Relying on recently bias and simply mantras:

“interest rates always go down” => “floating rate always beats fixed rate”

Not realising where we were on the chart. You show the 10 year here almost getting to zero.

Sure, maybe some people did actually take this to the logical conclusion and say “you know what this is going to keep going down until it goes negative and the bank is going to pay me interest”.

Someone more sensible might have said “if this isn’t the lowest mortgage rates are ever going to get, it is damn well close enough that I should grab it now.”

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Doesn’t matter if rates go up or down. Let’s think free and ignore that for a second.

Costs of a bank for a fixed mortgage:

  • Risk costs (as in the mortgage holder not being able to pay the interest/repay the mortage)
  • Liquidity costs (cost of the money either from the money market or through bank customer money)
  • Interest rate change risk (changing liquidity costs)
  • Administrative costs (Operations, IT etc.)

Plus margin (changes during mortgage duration)

Costs for a SARON mortgage

  • Risk costs (same)
  • Liquidity costs (less risky because of next point)
  • Interest rate change risk (none → floating rate, bank can always refinance with no extra costs because of fixed margin)
  • Administrative costs (same)

Plus margin (fixed but doesn’t proportionally scale with higher interest)

So the product SARON has less unknowns and gives you a fixed margin. Economically this product has to be cheaper than a fixed mortgage no matter the interest rate because it’s less risky (in the long term). There is no free lunch in locking in “cheap” rates as in the end the bank has to be profitable so some might pay less than market but a lot of others have to compensate that by paying more than the market but I guess that makes sense to everyone.

If you have a fixed mortgage you don’t have the “risk” of changing interest rate but you constantly have the risk of overpaying the market.

Please correct me if I’m wrong, just my two cents.

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I do not think that this is necessarily true, banks can completely hedge this risk with interest rate swaps. Because of that, you can also look up the implicit margin by subtracting the swap rate (with the same duration) from the rate of a fixed rate mortgage. In my experience, these margins are not higher than the ones of SARON mortgages.

A SARON mortgage is cheaper than a fixed rate mortgage if the avg. rate is lower than the current market expectation over the time span, which is off course very hard to predict.

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But the hedging has to carry additional costs no?

Costs / any premium (e.g. a term premium) are incorporated into the swap rate, the bank pays this fixed rate to another party and receives SARON payments for it. So yes, I guess there is some hidden hedging cost within the swap rate. No idea how high that is, but it looks like there are researchers that try to estimate it using various (non-trivial) techniques, e.g.: JRFM | Free Full-Text | Term Premia in Norwegian Interest Rate Swaps

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