There are different types of mortgages.
A mortgage should be affordable for you in all phases of life. As a basic rule, the financial institutions assume that the annual mortgage payments with a simulated interest rate (currently approx. 5%) do not exceed one third of your gross income. We roughly distinguish three types of mortgage
- fixed-rate mortgage
- SARON mortgage (former LIBOR)
- variable mortgage
The fixed-rate mortgage is a loan in which the interest rate is fixed for the entire term. The term of the mortgage can be set between 2 and 15 years. You are protected against rising interest rates and have planning security for the future.
Taking out a fixed-rate mortgage is advantageous when current interest rates are low and an increase in interest rates is to be expected in the near future. The longer the term, the higher the interest rate. It is therefore important to compare different offers. The differences can be very large and the savings potential over the entire term of the fixed-rate mortgage is therefore huge.
The fixed-rate mortgage is currently the most widely used type of mortgage for real estate in Switzerland.
The SARON mortgage is a money market mortgage based on the SARON (Swiss Average Rate Overnight). The SARON has existed since 2009 and is calculated on the basis of completed transactions and binding quotes (buy and sell prices) in the Swiss money market.
The calculation method was developed by SIX Group AG (SIX) in cooperation with the Swiss National Bank (SNB).
The SARON applies to the interest period overnight. However, so that you don’t have to pay interest every day, interest periods of three months are offered. In order to determine the interest rate for the respective period, SIX offers the “Compounded SARON” reference interest rate. It is calculated from the average of the SARON interest rates compounded daily. An agreed margin is added to this compounded SARON. Specifically, this means that the amount of the interest payment is not determined at the beginning, but only at the end of the interest period.
The variable mortgage has no fixed term. It is only subject to a period of notice, which is usually three or six months. The interest rate on the variable mortgage rises and falls with the general interest rate level. The variable mortgage is the most expensive of the three types of mortgage in the low interest rate environment in which we are currently. For this reason, the variable mortgage has only been used very rarely and only in special cases in recent years. If you plan to sell your home in the near future or to make a major down payment, then a variable mortgage makes perfect sense.