Financing products are also constantly evolving in international real estate financing in order to meet the needs of the market and economic developments. With the introduction of the Saron Mortgage has undergone a significant change. In this article, we take a look at the history and provide an up-to-date overview of the Saron mortgage. We explain the origins and development of the Saron mortgage, look at the phased introduction of this form of loan and its current significance for the Swiss financial sector. Country-specific terms and their impact on the Swiss real estate market are also explained.
Saron Mortgage
SARON stands for Swiss Average Rate Overnight and is an important interest rate in the Swiss market. The Saron serves as the basis for calculating the interest rates for various financial products, including real estate financing. SARON is a volume-weighted average rate based on completed transactions. The daily SARON rates are used to calculate forward interest rates (compound rates), which are needed as a basis for loans and other financial products. The Saron mortgage uses the Saron overnight rate to calculate the interest rate for real estate financing.
History of the Saron Mortgage in Swiss Finance
The Swiss financial market used to use LIBOR to set interest rates for various financial products. However, with the LIBOR manipulations and the subsequent scandals, the search was on for less manipulation-prone and more transparent reference rates. Switzerland was one of the first countries to respond to this need. Around 2010, Swiss banks began looking for alternatives to LIBOR. The impetus for this came from the Swiss National Bank (SNB), which in 2009 introduced the Saron rate, which is calculated by the SIX Swiss Exchange based on actual transactions in the Swiss franc market. The Financial Stability Board (FSB) advised a move away from LIBOR to more robust benchmarks, and the transition to Saron accelerated. As LIBOR was gradually phased out, Swiss banks were well prepared for a smooth transition to Saron. The introduction of the Saron mortgage gained momentum as more and more banks adopted the new reference rate for pricing their products. As Swiss real estate financing was converted, the traditional fixed-rate and LIBOR-linked financing was increasingly replaced by the Saron mortgage.
Saron Mortgage vs. Variable Mortgages
Like the variable-rate mortgage, the SARON mortgage is a so-called Money market mortgage., both of which are interest-only products where borrowers can take advantage of falling interest rates but also bear the risk of rising interest rates.
One difference between the two variants is in the duration, while a SARON mortgage is often tied for a very short period of often just one day or one night, a minimum term of one year is often provided for, and terms of three to five years are more common. In the case of a normal variable-rate mortgage, the interest rate is not tied to a reference rate, as is the case with a SARON mortgage, but is set by the bank, which is why the interest rates variable-rate mortgages usually higher are lower than with SARON mortgages. There is often no fixed term for variable-rate mortgages either, just a notice period of three to six months. With a variable-rate mortgage, borrowers have greater flexibility than the SARON mortgage, but the latter is often paid with higher interest rates.
The Saron mortgage offers borrowers a clear and transparent approach to calculating their interest rates, making it an attractive financing alternative for the Swiss real estate market, including for international investors. The fact that the Saron mortgage also meets the stricter regulatory requirements is an important feature in terms of transparency and reliability.
Further information and expert advice can be found on our pages about International Mortgages including Swiss Mortgages, Italian Mortgages, German Mortgages and Spanish Mortgages.
