Last week, the Swiss National Bank (SNB) surprisingly lowered its key interest rate by 0.25 percentage points to 1.5%. The US Federal Reserve and the European Central Bank (ECB) have also announced their intention to lower their key interest rates in the coming quarters. Property owners are now wondering what impact this will have on their mortgage. Here is an overview of the most important issues related to the current interest rate cut.
The 'Best Offer’ is determined on the basis of current interest rate trends and takes into account both Saron and fixed-rate mortgages.
What is the key interest rate?
The key interest rate is a monetary policy instrument and is set by the central banks. It is the interest rate at which commercial banks can refinance themselves with the central banks.
The sharp rise in global inflation has seen national banks hike their interest rates over the past two years. As a result, interest rates on mortgages have now risen to their highest levels since 2011. Now inflation is normalising, national banks have the opportunity to lower their interest rates and so support the economic recovery.
The SNB began by reducing its key interest rate by 0.25 percentage points in March 2024 ahead of the other G10 national banks. These developments can also have an impact on the demand for mortgages. Long-term fixed-rate mortgages are currently cheaper than SARON mortgages, which is why there is currently little demand for the latter. However, if the key interest rate falls any further, customers might opt for a different mortgage. Swiss Life provides an overview of the key issues surrounding the key interest rate cut.
How will the situation develop?
Swiss Life expects the SNB to lower its key interest rate by another 0.25 percentage points to 1.25 percent by the end of the year. A further interest rate cut by the SNB would cause the interest rate for SARON mortgages to fall further. Swiss Life currently expects medium- to long-term CHF interest rates to trend sideways.
How can property owners benefit from the fall in interest rates?
The rate cut will have a direct impact on SARON mortgages. The interest paid by SARON mortgage holders should already be lower for the first quarter than at the end of 2023. However, SARON mortgages are still more expensive compared to fixed-rate mortgages. Borrowers should therefore check carefully whether it is really worth taking out a SARON mortgage or whether this is outweighed by the advantages of a fixed-rate mortgage.
With Swiss Life, you can extend your expiring mortgage early up to 18 months prior to the end of the term. Due to the inverse yield curve, the interest surcharge for an early extension is very low or does not apply at all for many terms.
Should I wait before extending my mortgage?
There is no general answer to this question. Whether you should extend your mortgage early depends on the expected interest rate trend for the national banks as well as your individual financial situation.
Assuming that current interest rates will continue to fall and you are prepared to accept a certain amount of fluctuation in the interest you pay, it may be worth waiting for the time being, or taking out short-term mortgages.
However, if you want security, your financial situation would not allow you to pay more interest or if you expect interest rates to rise, you should consider extending the mortgage early via a fixed-rate mortgage with a relevant term. It may be worthwhile extending your mortgage early because fixed-rate mortgages already partly reflect the lower interest rates and the interest surcharge for early extensions is very low.
For new mortgages, what types are currently recommended?
This question depends in particular on the borrower’s risk appetite and financial resources. If the need for security prevails or there is little room for financial manoeuvre, then it is advisable to take out a fixed-rate mortgage.
If the borrower is financially able to tolerate certain fluctuations and assumes that the SNB will lower key interest rates further, shorter terms and the addition of SARON mortgages may pay off. However, fixed-rate mortgages are currently cheaper than SARON mortgages for many terms.
What else should I keep in mind as a mortgage borrower?
It is always a good idea to get a personal consultation on the topic of mortgages. The experts at Swiss Life will walk you through every market situation and support you throughout the entire financing process, offering expert advice on residential property and mortgages. They will help you find enough money available to buy your dream home in a self-determined manner.
What is a SARON mortgage?
The SARON mortgage has no fixed term and no fixed interest rate. The variable interest rate is based on the SARON (Swiss Average Rate Overnight). The SARON is calculated on the basis of completed transactions and binding quotes (purchase and sale prices) in the Swiss money market. A SARON mortgage is right for you if you want to benefit from interest rates remaining low or falling. With a SARON mortgage you participate in the current interest rate trend.
How can I extend my mortgage early?
Most banks and insurance companies offer an early extension of mortgages between six and 24 months before maturity. As a rule, it is free to do so within three to six months in advance. To extend it, you take out the new mortgage on a specified date, thereby securing the current interest rate, regardless of how high or low the interest rate on the maturity date of your mortgage.
Obtain advice now
We will explain the pros and cons of SARON, fixed-rate and green mortgages in a consultation and determine which product and term best suit you and your financial needs.
