Mortgage rates: fixed, variable or SARON, how to choose right now?

Understanding the three main families of mortgage rates

Buying an apartment in Lausanne, a house on the Vaud Riviera, or renegotiating a mortgage that has reached maturity? The question of the type of rate is often the first to arise, and often the least well understood. Between the security of the fixed rate, the flexibility of the variable rate and the transparency of SARON, each arrangement follows a different logic in terms of risk, cost and predictability. Before comparing figures, it is essential to understand how each product works.

In Switzerland, banks and insurance companies essentially offer three types of mortgage financing. The first, the fixed rate, is the most widespread. You lock in a rate for a set period, generally between two and fifteen years. Whatever happens on the financial markets, your mortgage burden remains identical until maturity. It is the preferred solution for families who want to budget precisely and avoid unpleasant surprises.

The variable rate, for its part, fluctuates depending on monetary policy decisions and general market conditions. It is not indexed to any specific reference rate and is set freely by the lending institution. Long popular as a stopgap or flexible solution, it has gradually lost its appeal since the introduction of SARON.

Finally, the SARON rate (Swiss Average Rate Overnight) is the successor to the former Libor, which it officially replaced at the end of 2021. It reflects the average cost at which Swiss banks lend money to each other overnight on the secured money market. Your rate is recalculated periodically, generally each quarter, on the basis of the Compounded SARON, to which a fixed margin contractually defined by your lending institution is added.

The fixed rate: security above all

The fixed rate is the most intuitive and most widely used arrangement in French-speaking Switzerland. You know exactly the amount of your mortgage burden for the entire term of the contract. This predictability is valuable, particularly for households with stable incomes, for families who have just moved into a property and need visibility on their budget, or for owners who do not have a sufficient reserve to absorb an unexpected rise in rates.

The advantages of the fixed rate

- Stable, predictable monthly payments throughout the term of the contract, regardless of market fluctuations.

- Total protection against a rise in rates: if rates go up after you sign, you feel no impact.

- Easier budget planning for households and families, whatever the economic context.

- An ideal solution at the bottom of a rate cycle or when the outlook points to a lasting rise.

The drawbacks not to overlook

- Early exit penalty: if you sell your property or wish to repay your mortgage before maturity, the bank applies an early termination fee that can prove very high, especially in a period of low rates.

- A rate that is generally higher than a SARON at the time of signing, this extra cost being the premium for the security you are buying.

- You do not benefit from a fall in rates during the contract: if the market moves favorably, you remain locked into your initial rate.

In French-speaking Switzerland, owners attached to stability have historically favored the ten-year fixed rate. But the optimal term depends above all on how long you expect to hold the property and on your life plans. A buyer who plans to resell in five years, for example following a professional or family change, has no interest in committing for fifteen years and risking a substantial exit penalty.

Worth remembering: the fixed rate is not automatically the best option. It is the best option for those who value security and whose holding horizon matches the chosen term.

The variable rate: a product being marginalized

The traditional variable rate long played a role in the Swiss mortgage landscape, mainly as a stopgap solution or for atypical situations. In theory, it falls when market rates fall and rises when they rise. In practice, observers have often noted that lending institutions pass on increases more quickly than decreases, which structurally disadvantages the borrower.

Today, this product is offered less and less by Swiss banks and chosen less and less by borrowers. Its lack of transparency, linked to the absence of an official reference rate, and its cost, often higher than SARON, make it unattractive in the current context. It can nonetheless suit very specific situations: short-term financing while waiting to refinance, an imminent sale of the property, or a borrower who wishes to retain full repayment flexibility without penalty.

In any case, if an advisor offers you a variable rate as the main solution, you should ask for a detailed comparison with SARON before making a decision.

The SARON rate: flexibility and transparency, but a measure of uncertainty

Since the replacement of Libor at the end of 2021, SARON has established itself as the benchmark for short-term mortgage rates in Switzerland. Its main strength is its total transparency: it is published daily by SIX Swiss Exchange and reflects real transactions on the secured Swiss money market. It cannot be manipulated by any one bank, unlike the variable rate.

The advantages of SARON

- A rate generally lower than the fixed rate at the time of signing, which represents a real short-term saving.

- Total transparency: the index is public, verifiable and independent of your bank.

- Relative flexibility: SARON contracts often come with more flexible exit conditions than long fixed rates, depending on the institution.

- Immediate benefit from a fall in rates: if the Swiss National Bank (SNB) lowers its policy rate, the impact is felt quickly on your mortgage burden.

The drawbacks to factor into your thinking

- Uncertainty about future monthly payments: your burden can rise if the SNB raises its rates, which makes budget planning more complex.

- The need for a financial reserve to absorb a possible increase without jeopardizing the household's balance.

- Complexity of understanding: the mechanism of the Compounded SARON and the calculation periods is less intuitive than the fixed rate, and deserves to be explained in detail by your advisor.

Worth remembering: SARON is particularly suited to borrowers who have a certain financial margin, who accept a measure of variability and who wish to benefit from a starting rate lower than the fixed rate.

How to choose based on your profile and the current context?

There is no universally superior option. The choice of rate type is a personal decision that must take several joint parameters into account.

Your risk profile and financial situation

If your budget is tight, you have no significant reserves or your income is variable, the fixed rate remains the most prudent solution. Conversely, if you have comfortable savings and the capacity to absorb a rise in rates, SARON can allow you to make a substantial saving in the short term.

Your holding horizon for the property

A buyer settling for the long term in a family house in Pully, Vevey or Montreux will be well advised to lock in a fixed rate over a long term to avoid uncertainty. A buyer who plans to resell in three to five years will favor a shorter solution or a SARON to avoid significant exit penalties.

The split strategy

An approach often recommended by Swiss mortgage financing specialists is to divide your mortgage into two tranches with different types and terms. For example, a first tranche at a ten-year fixed rate to secure the base, and a second tranche on SARON to retain a measure of flexibility and benefit from any decreases. This strategy reduces both the overall risk and the potential penalties in the event of an early sale.

The context of Swiss monetary policy

The decisions of the Swiss National Bank directly influence the level of mortgage rates, whether SARON or, indirectly, fixed rates via the rates on federal bonds. Following the direction of Swiss monetary policy is therefore useful for anticipating trends, without claiming to predict the markets with certainty.

The classic mistakes to avoid in French-speaking Switzerland

Several widespread reflexes among French-speaking borrowers deserve to be questioned. Systematically choosing the longest possible fixed rate out of fear of the markets is not always optimal: if you resell before maturity, the penalty can wipe out years of savings. Conversely, betting solely on a SARON without sufficient reserves exposes you to a rise in costs that can strain your family budget.

It is also common to neglect mortgage renegotiation. A mortgage reaching maturity is an opportunity to seize: do not automatically renew it with your current bank without having compared the offers on the market. The gaps between institutions can be significant over a ten-year term.

Finally, do not hesitate to call on a mortgage financing broker or an independent advisor to compare the offers of several banks and insurers. In French-speaking Switzerland, competition between institutions is real, and a well-prepared bidding process can lead to significantly more favorable terms.

Support: an essential step

Choosing between a fixed rate, a SARON or a mixed solution is not a decision to make alone, nor lightly. Every situation is unique: your income, your savings, your life plans, the nature of the property and your sensitivity to risk all come into play. A competent advisor will be able to model different scenarios and help you choose the arrangement best suited to your reality, in compliance with the financing rules in force in Switzerland.

At Homewell, our network of financial partners covers the entire canton of Vaud, from Lausanne to the Vaud Riviera. We support our clients at every stage of their real-estate project, including in their thinking about financing, so that your purchase is not only a success in terms of the property, but also a sound and lasting financial decision.

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