The successor to the Libor mortgage
The SARON mortgage has a variable interest rate and an unlimited term.
This means that the interest rate depends on the SARON (Swiss Average Rate Overnight). The SARON is calculated on the basis of completed transactions in the Swiss money market.
The calculation method was developed by SIX Group Ltd (SIX) and the Swiss National Bank (SNB). The SARON is robust and publicly visible. It is calculated and published immediately after each close of trading.
The interest rates shown were determined by key4 on the basis of the following financing parameters: canton: Zurich, loan amount: CHF 500,000, affordability: 24%, loan-to-value ratio: 50%, mortgage payout date: 19.11.2020.
Why is the Libor being replaced by the SARON?
Since the financial crisis, banks are increasingly lending money to each other only against the deposit of collateral. As a result, no true unsecured transactions are being concluded for many terms, and prices can only be estimated. As a result, the Libor has lost its significance and is no longer suitable as a benchmark interest rate in the longer term.
How does a SARON mortgage work?
The SARON is valid for the overnight interest-rate period. However, so that you do not have to pay interest every day, key4 offers interest settlement periods of three months. To determine the interest rate for the respective period, SIX offers the “Compounded SARON” benchmark rate. It is calculated from the average of the SARON rates compounded daily.
Specifically with regard to the key4 SARON mortgage, this means that the amount of the interest payment cannot be determined at the beginning of the interest period, but only at the end.
The key4 SARON mortgage is particularly suitable for people who follow events on the money and capital markets and can cope financially with short-term rises in interest rates.
A brief guide to the SARON
What are the differences between the Libor and the SARON?
There are basically two differences between the Libor and the SARON.
The SARON is based on real transactions, while the Libor is increasingly calculated according to estimates by selected banks. The SARON is therefore described as a robust alternative to the Libor.
In addition, the SARON is an overnight interest rate and applies for the interest period from today to tomorrow. The Libor, on the other hand, is the interest rate for a certain term, usually three months.