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Mortgages
What is the current interest rate for a SARON mortgage?
The current interest rate for SARON mortgages varies. It is set every three months. Compared to fixed-rate mortgages with a long term, SARON mortgages offer a variable interest rate.
Content:
Content:
- What is SARON and why was it introduced?
- What strategy can be used to reduce interest rate risks?
- In which cases would a SARON mortgage not be advisable?
- To the conclusion
SARON (Swiss Average Rate Over Night) is a Swiss overnight interest rate. It is highly dependent on the Swiss National Bank’s key interest rate and is updated daily by SIX. In the long term, a SARON mortgage generally offers more attractive interest rates than a long-term fixed-rate mortgage. There are several ways in which you can minimize the interest rate risk with SARON mortgages.
The British financial market authority decided to only support the LIBOR (London Interbank Offered Rate) until the end of 2021. The main reason for this decision was the financial market crisis in 2008/2009. Fewer and fewer commercial banks remained prepared to grant each other unsecured loans. As a result, LIBOR was increasingly based on estimates rather than real transactions and lost its informative value and credibility.
SARON (Swiss Average Rate Over Night) then replaced LIBOR. SARON is determined on the basis of completed transactions and binding price requests on the Swiss money market. The reference interest rate is publicly available and is calculated and published daily by SIX after the close of trading. Due to the secure basis of the SARON, the National Working Group on Swiss Franc Reference Rates (NWG) recommended in 2017 that SARON should be established as the new reference interest rate.
SARON mortgages (money market mortgages) require longer interest periods and a longer-term interest rate than the daily SARON, which applies for the interest period from today to tomorrow. That is why the Compounded SARON for the prior three-month period is used for mortgages.
The Compounded SARON is also calculated by SIX, based on the daily compounded rates. Unlike with a LIBOR mortgage, the calculation is carried out in arrears, which makes a big difference to the customer. In other words, the interest rate applicable to the borrower is set at the end of the three-month interest period in a similar way to electricity, where users are billed afterwards for their actual consumption.
Good to know: in the past, the Compounded SARON ran almost parallel to the 3-month LIBOR, and has even proved lower and more stable in turbulent market phases.
How often is the SARON interest rate updated, and what does this mean for my monthly mortgage payments?
How often is the SARON interest rate updated, and what does this mean for my monthly mortgage payments?
The interest rate of a UBS SARON Mortgage is adjusted to SARON on a quarterly basis. This means that the interest rate you pay as a customer can change every three months.
It is important to remember that the customer interest rate is made up of the Compounded SARON and an agreed fixed margin. This margin varies depending on the provider, the customer’s credit rating and the chosen SARON mortgage. If SARON is negative, mortgage lenders demand at least the credit margin as the interest rate set for the SARON mortgage.
Interest is payable monthly or quarterly, depending on the contract. That also depends to some extent on the provider.
What will happen to interest rates?
What will happen to interest rates?
Our interest rate forecast keeps you up to date with the current interest rates and how they're likely to change – free of charge by email.
What SARON products does UBS offer?
What SARON products does UBS offer?
UBS offers two unlimited, variable-rate mortgage products: the UBS SARON Mortgage and the UBS SARON Flex Mortgage. Both offer borrowers the opportunity to protect themselves against rising interest rates by switching to a multi-year UBS Fixed-Rate Mortgage, in whole or in part, within a few working days. With the Flex version, the borrower has the option to pay off the loan amount flexibly four times a year.
SARON mortgage
SARON mortgage
Would you like to finance your home based on a market-oriented interest rate? Then the SARON mortgage is the right choice for you. Obtain advice from our UBS experts now!
There are several ways to minimize the interest rate risk with SARON mortgages.
- Normally, a rise in interest rates on long-term fixed-rate mortgages is a good indicator that interest rates on money market mortgages such as the SARON mortgage will also rise.
- You should therefore also keep an eye on long-term market interest rates to make sure you don’t miss the right time to switch from a UBS SARON Mortgage to a UBS Fixed-Rate Mortgage.
- Combine several mortgages, each with a different term. By diversifying your mortgage financing, you also avoid the risk of having to reconfigure the total financing at an unfavorable time.
- Review your mortgage strategy regularly with your client advisor.
You should consider the following factors before opting for a SARON mortgage.
- If interest rates are currently very low, a fixed-rate mortgage may be more worthwhile, as you will be able to benefit from the current low interest rate for several years.
- SARON mortgages involve a certain financial risk because interest rates can rise (and fall again) at any time. If you don’t have a financial cushion for periods of high interest rates, or are generally less willing to take risks, you are usually better off with a fixed-rate mortgage – even if experience shows that SARON mortgages are generally more favorable in the long term.
Anyone opting for a SARON mortgage should have a certain appetite for risk and be prepared to monitor the interest rate market on a regular basis.
Disclaimer
Disclaimer
