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The mortgage interest rate is quite simply the price you pay to the bank for your home loan in Switzerland. In other words, it determines how much your house really costs you:


  • It is the Swiss National Bank (SNB) that controls the base rate. If the SNB raises its rate, banks raise theirs, and vice versa.
  • If your mortgage application is excellent (you have substantial savings, stable income, etc.), your mortgage interest rate will be lower.
  • Fixed rate or SARON (Swiss Average Rate Overnight): you can choose between a fixed percentage for the entire duration of your loan or a variable rate, which is riskier but can also allow you to make significant savings.

What is a mortgage interest rate?

The interest rate on a mortgage simply refers to the price you pay the bank for borrowing money:


  • The loan (the mortgage): this is the money the bank gives you to buy your house.

  • The interest rate: this is the percentage the bank charges you each year, on top of the loan, for this service.

For example, if you borrow CHF 100,000 at an interest rate of 2%, you will have to pay CHF 2,000 in interest that year (in addition to repaying the principal).


Why "mortgage"?

Because the house you buy serves as collateral. If you can no longer pay the bank, it is entitled to take your house in order to recover its money.


What are the different mortgage interest rates in Switzerland?

The choice of your interest rate type depends above all on how you deal with uncertainty: are you someone who values security at all costs, or are you willing to take a risk in order to potentially pay less?


The fixed-rate mortgage

This is the simplest option! With it, your interest rate does not change for the entire period you choose (often 3, 5, or 10 years, or even longer).


Advantages


  • Total stability: you know exactly how much you will pay each month. If market rates skyrocket, yours stays low.

  • Long-term visibility: ideal for planning your budget without surprises.

Disadvantages


  • Rigidity: if you have to sell or change your mortgage before the end of the contract, the penalties are very high.

  • Opportunity cost: if rates drop significantly on the market, you continue to pay your higher rate.

The SARON mortgage (Swiss Average Rate Overnight)

SARON is a variable rate. It is directly linked to the SNB’s monetary policy, which means that if the SNB raises or lowers its base rate (or key rate), your SARON follows very quickly.


Note that the rate is calculated daily based on the Swiss interbank market. The bank then adds a small fixed margin to make its profit.


Advantages


  • Adjustment: if interest rates fall, your monthly payment drops immediately.

  • Flexibility: you can often change mortgage models more easily or repay without massive penalties (depending on the contract).

  • Price: often cheaper than a fixed rate during periods of economic calm.

Disadvantages


  • Unpredictability: if rates rise, your monthly payment rises as well.

  • No ceiling: your rate can rise very high (absence of a cap), making your costs unpredictable.

The variable-rate mortgage

Be careful: this model is almost obsolete in Switzerland! So why is it no longer used?


Quite simply because it is often more expensive and less advantageous than SARON or fixed-rate mortgages, as it offers little visibility without the benefits of either. It is only kept for very specific situations where the borrower needs to be able to repay at any time.


Who or what do interest rates in Switzerland depend on?

To understand interest rates, you need to understand what makes them move. Be aware that the cost of your mortgage depends on the SNB, the state of the financial market, and more broadly on the overall health of the economy.


The Swiss National Bank (SNB)

As a reminder, the SNB sets the key interest rate, i.e. the base rate for the Swiss economy. If the SNB raises its rate to curb inflation (rising prices), the variable SARON rate increases almost immediately.


Good to know: fixed rates react a bit later, but generally move in the same direction.


The bond market

This is another way of saying how the Swiss government borrows money! The yields on Swiss Confederation bonds therefore set the tone for fixed-rate mortgages.


If borrowing costs for the State increase over the long term (rise in bond yields), then your fixed mortgage loan will also mechanically become more expensive.


Inflation and the economic climate

When inflation (rising prices) is pronounced, the SNB tends to raise its rates in order to cool economic activity. This results in higher mortgage financing costs.


Conversely, if economic activity slows down, the SNB may lower its rates to stimulate the economy, making loans less expensive.


How to obtain a good interest rate for your mortgage?

Know the bank’s criteria

Before granting you a loan, banks check your ability to repay by examining three key points:


Your personal contribution

Your own funds must amount to at least 20% of the total purchase price of the property.


At least half of this equity (i.e. 10% of the purchase price) must come from "liquid" funds (cash, account balances, pillar 3a/3b assets, proceeds from the sale of securities, gifts or interest-free family loans) and not from the second pillar (occupational pension scheme).


Your debt ratio

The bank simulates your repayment capacity using a high theoretical interest rate (often 5%), even if the actual rate is lower.


It then adds repayment costs (amortisation) and maintenance costs (estimated at 1% of the property’s value). The total of these charges must not exceed one third (33%) of your gross annual income.


Pledging and mortgage rank

Pledging means that your property is used as collateral for the loan.
The "ranks" define which parts of this collateral are the most secure for the bank:


  • The first mortgage finances up to 65% of the property’s value and does not require mandatory amortisation (repayment).

  • The second mortgage finances the remainder (between 65% and 80%). This portion must be repaid (amortised) within 15 years or before retirement.

Negotiating your interest rate

Once you know that you are eligible for financing, you need to obtain the best price:


  • Compare to gain leverage: contact several types of lenders (banks, insurance companies, pension funds). Having competing offers gives you immediate leverage to negotiate.

  • Highlight your profile: if you have stable income and a low level of personal debt, this strengthens your credibility and negotiating power with the bank.

  • Use a broker: a specialised broker can often obtain more advantageous rates than those offered directly to the public. They negotiate large volumes and have access to the best market conditions.

Use a mortgage simulator

Simulation tools are essential for making an informed decision, as they give you a precise estimate of your maximum borrowing capacity.


Above all, they allow you to clearly compare what the SARON (variable) scenario would cost you versus the Fixed (security) scenario, enabling a rational decision.


Would you like to estimate your mortgage rate before starting a purchase?

dreamo.ch offers a financial capacity calculator on all properties for sale, accessible by clicking the "Financing" button on the page of the property you are interested in.