Which mortgage models are suitable for financing my home ?

Analysis of mortgage models: Security vs. flexibility

To find the right financing for you, you need to understand the mechanics of the different mortgage models . We divide the options into three main categories that dominate the Swiss market.

The fixed-rate mortgage: A rock in the surf

Among mortgage models, the fixed-rate mortgage is the classic choice for security-conscious borrowers. Around 75 to 80 percent of the mortgage volume in Switzerland is this model.

• How it works: You freeze the interest rate for a specific term – usually between 2 and 10 years, sometimes up to 15 or 20 years. No matter what happens on the world markets: your interest rate remains the same.
• Advantage: Maximum predictability. You know exactly what you'll have to pay in 8 years. This makes the fixed-rate mortgage the king of mortgage models for families or tight budgets.
• Disadvantage: You pay a premium for this security. Historically, fixed-rate mortgages have often been more expensive than money market-based mortgage models . Furthermore, you are bound to the agreement. Early termination (e.g., in case of sale or divorce) can trigger a hefty prepayment penalty.

Choosing one of these mortgage models offers peace of mind. However, beware: if the fixed-rate mortgage expires during a period of high interest rates, a "rate shock" is likely when it needs to be renewed.

The SARON mortgage: Transparency in the money market

Since the abolition of LIBOR, SARON (Swiss Average Rate Overnight ) has become the new standard for flexible mortgage models . It is considered transparent and fair because it is based on actual transactions in the Swiss money market.

• How it works: The interest rate consists of the SARON base rate (which fluctuates daily) and a fixed margin charged by the bank. Billing usually occurs quarterly in arrears.
• Advantage: Historically, money market mortgages have almost always been the cheapest of all mortgage models . You benefit immediately when interest rates fall.
• Disadvantage: The interest rate risk lies entirely with you. If the central bank's key interest rate rises, your mortgage will immediately become more expensive. Among mortgage models, SARON requires nerves of steel and a financial cushion to absorb peaks.

The variable mortgage: The outdated model

Often confused with SARON, but technically one of the most outdated mortgage models .

• How it works: The interest rate is adjusted by the bank at its own discretion. There is no fixed term (usually a 3-6 month notice period).
• Disadvantage: Interest rates are usually significantly higher than with other mortgage models . This model is almost exclusively suitable for short transitional periods (e.g., if you plan to sell the house soon), as it offers maximum flexibility without a penalty. For long-term financing, it is generally the worst choice among mortgage models .

The mix: The diversification strategy

Many experts advise against putting all your eggs in one basket. Combining different mortgage models can mitigate risks.

• Tranching: You divide the mortgage debt. For example, 50% into a 10-year fixed-rate mortgage and 50% into a SARON mortgage.
• The effect: You partially benefit from low market interest rates (SARON), but have budget security for half of the debt (Fixed).
• The trap: Staggering the maturities of fixed-rate mortgages (e.g., one tranche for 5 years, the other for 10 years) ties you extremely tightly to the bank. You can't switch banks when the first tranche expires because the other tranche is still running. This limits competition among mortgage models .

Which mortgage model is right for whom?

The choice of mortgage model depends on your profile:

• The budget calculator: Is your budget tight? Can't afford an interest rate increase? Choose long-term fixed-rate mortgages. Among mortgage models, this is your insurance against financial ruin.
• The Market Optimizer: Do you have enough income to withstand a doubling of interest rates? Do you want to pay the least in the long term? Then SARON is one of the most attractive mortgage models for you.
• The undecided borrower: You want security, but don't want to pay too much in "insurance premiums"? A mix of mortgage models (e.g., 60% fixed, 40% SARON) balances your risk.

Conclusion

The question "Which mortgage models are suitable for financing?" cannot be answered in general terms. The landscape of mortgage models offers a solution for every risk profile. While fixed-rate mortgages offer planning security at the expense of flexibility, SARON products attract borrowers with often low interest rates but carry volatility risks.

Don't be blinded by simple interest rate comparisons. The cheapest mortgage models are useless if rising interest rates put you in financial trouble. Analyze your affordability under stress scenarios. Sound financing will outlast any market phase. Don't just compare interest rates, but also the terms and conditions of the mortgage models (notice periods, margins).

If you want to simulate how different mortgage models affect your monthly payments or which bank currently offers the best conditions for your favorite mortgage model , Loft provides neutral comparison calculators and market analyses.

Glossary

• Mortgage models: The different types of real estate loans (fixed, SARON, variable) that differ in interest rate, term and risk.
• SARON (Swiss Average Rate Overnight ): The reference interest rate for the Swiss money market. It has replaced LIBOR and forms the basis for many flexible mortgage models .
• Prepayment penalty: A penalty fee charged for early termination of a fixed-rate mortgage. A significant risk with rigid mortgage models .
• Tranching : Dividing the mortgage debt into several installments with different maturities or mortgage models to spread the interest rate risk.
• Margin: The bank's markup on the base interest rate (swap or SARON). In mortgage models, this is the bank's profit and is often negotiable.