SARON or Fixed-Rate Mortgage: Investor Strategy
In March 2022, the SARON stood at minus 0.7 percent. Three years later, at 1.2 percent. Those who had locked in a 10-year fixed rate in early 2022 were suddenly paying less than SARON customers. Those who had bet on SARON benefited from historically low rates for years but had to absorb an interest rate increase of nearly two percentage points within 18 months.
For homeowners, such an increase is uncomfortable. For investors with rental properties, it can be existential. When interest costs consume the entire cashflow and the property suddenly costs money each month instead of generating it, an investment quickly becomes a problem.
The choice between SARON and a fixed-rate mortgage is therefore not a minor detail. It is one of the most important strategic decisions you make as a real estate investor. And it deserves more than a gut feeling.
SARON Mortgage: How It Works
The SARON (Swiss Average Rate Overnight) is the reference interest rate for the Swiss money market. It replaced LIBOR in 2019 and is calculated by SIX Swiss Exchange based on actual transactions.
Mechanics of the SARON Mortgage
A SARON mortgage does not have a fixed interest rate. Instead, your rate consists of two components:
SARON base rate: Calculated daily and compounded over the interest period (typically three months). This means you do not pay the SARON of a specific day but the so-called Compounded SARON, the cumulated daily interest over the entire period.
Bank margin: A fixed surcharge that the bank charges for its service and credit risk. Typically 0.6% to 1.0%, depending on creditworthiness, loan-to-value ratio, and bank.
Example calculation (as of April 2026):
| Component | Value |
|---|---|
| SARON Compounded (3 months) | 0.20% |
| Bank margin | 0.75% |
| Effective interest rate | 0.95% |
Advantages of the SARON Mortgage
- Historically cheaper: Over the last 30 years, variable rates have on average been cheaper than fixed-rate mortgages. The yield curve is usually upward-sloping, meaning short-term rates are lower than long-term ones.
- Flexibility: SARON mortgages can typically be cancelled or converted to a fixed-rate mortgage with three to six months' notice. You are not locked in for years.
- Benefit from rate cuts: When the SNB lowers rates, you feel it in your mortgage payment within a few months.
Disadvantages of the SARON Mortgage
- Interest rate risk: You bear the full risk of rising rates. On a CHF 500'000 mortgage, a 1% increase means additional costs of CHF 5'000 per year.
- Fluctuating cashflows: For investors who want to plan their cashflow precisely, the uncertainty is a problem.
- No protection in crisis times: When inflation rises and the SNB hikes rates, you pay more precisely when other costs are also rising.
Fixed-Rate Mortgage: How It Works
With a fixed-rate mortgage, you agree a fixed interest rate with the bank for a specific term. During this term, your rate does not change regardless of what happens in the market.
Available Terms
Swiss banks typically offer fixed-rate mortgages for the following terms:
| Term | Typical interest rate (April 2026) | Suited for |
|---|---|---|
| 2 years | 1.20% | Short-term hedging, bridging |
| 3 years | 1.30% | Moderate security |
| 5 years | 1.45% | Most popular term |
| 7 years | 1.55% | Good compromise |
| 10 years | 1.70% | Long-term planning certainty |
| 15 years | 1.90% | Maximum security (few providers) |
The interest rates are indicative and vary by bank, creditworthiness, and loan-to-value ratio. Investment properties often carry a surcharge of 0.1 to 0.3 percentage points compared to owner-occupied homes.
Advantages of the Fixed-Rate Mortgage
- Planning certainty: You know exactly what you will pay over the entire term. Your cashflow is predictable.
- Protection against rate increases: No matter how much rates rise, your mortgage rate stays the same.
- Simplicity: No surprises, no monitoring, no decision pressure.
Disadvantages of the Fixed-Rate Mortgage
- Higher initial costs: You pay a premium for the security. The fixed rate is almost always above the current SARON rate.
- Inflexible: Early termination is expensive. The bank charges a prepayment penalty that can reach five-figure amounts depending on the remaining term and rate developments.
- Missed opportunities: If rates fall, you continue paying the higher fixed rate.
The Investment Perspective: What Matters for Rental Properties?
The choice between SARON and a fixed-rate mortgage looks different for a real estate investor than for a homeowner. The homeowner asks: can I afford the payments? The investor asks: what happens to my cashflow and my return?
Cashflow Security vs. Return Optimisation
Let us take a concrete example. You own an investment property with the following key figures:
- Purchase price: CHF 800'000
- Mortgage: CHF 600'000
- Annual gross rent: CHF 36'000
- Operating costs: CHF 6'000 per year
Scenario 1: Fixed-rate 5 years, 1.45%
| Item | Amount |
|---|---|
| Rental income | CHF 36'000 |
| Interest costs (1.45%) | CHF 8'700 |
| Operating costs | CHF 6'000 |
| Amortisation (1%) | CHF 6'000 |
| Cashflow before taxes | CHF 15'300 |
Scenario 2: SARON mortgage, currently 0.95%
| Item | Amount |
|---|---|
| Rental income | CHF 36'000 |
| Interest costs (0.95%) | CHF 5'700 |
| Operating costs | CHF 6'000 |
| Amortisation (1%) | CHF 6'000 |
| Cashflow before taxes | CHF 18'300 |
The SARON mortgage generates CHF 3'000 more cashflow per year. Over five years, that is CHF 15'000, provided the SARON stays constant. But it will not.
Scenario 3: SARON rises to 2.0% (effective 2.75%)
| Item | Amount |
|---|---|
| Rental income | CHF 36'000 |
| Interest costs (2.75%) | CHF 16'500 |
| Operating costs | CHF 6'000 |
| Amortisation (1%) | CHF 6'000 |
| Cashflow before taxes | CHF 7'500 |
Suddenly, the cashflow has halved. And at a SARON of 3% (which is by no means extreme historically), the cashflow turns marginal:
Scenario 4: SARON rises to 3.0% (effective 3.75%)
| Item | Amount |
|---|---|
| Rental income | CHF 36'000 |
| Interest costs (3.75%) | CHF 22'500 |
| Operating costs | CHF 6'000 |
| Amortisation (1%) | CHF 6'000 |
| Cashflow before taxes | CHF 1'500 |
Use the immometrics forecast calculator to run different interest rate scenarios for your specific property. This way you can see at what rate level your cashflow tips.
Tranching: The Combination Strategy
Many experienced investors do not rely on a single mortgage type but combine them. This strategy is called tranching.
How Tranching Works
You split your mortgage into two or three tranches, for example:
| Tranche | Amount | Product | Interest rate |
|---|---|---|---|
| Tranche 1 | CHF 300'000 | Fixed-rate 7 years | 1.55% |
| Tranche 2 | CHF 200'000 | Fixed-rate 3 years | 1.30% |
| Tranche 3 | CHF 100'000 | SARON | 0.95% |
| Weighted | CHF 600'000 | Mix | approx. 1.35% |
Advantages of Tranching
- Risk diversification: You are neither fully exposed to interest rate risk nor paying the full premium of a long-term fixed-rate mortgage.
- Staggered maturities: The tranches expire at different times. You never have to refinance the entire volume at once.
- Flexibility: The SARON tranche can be adjusted or converted to a fixed-rate mortgage at any time.
Disadvantages of Tranching
- Bank lock-in: Having tranched mortgages at the same bank makes you less flexible when switching banks. For a switch, all tranches would need to expire simultaneously, which is rarely the case.
- Complexity: More tranches mean more administrative effort and more expiry dates to track.
Recommendation for Investment Properties
For a single property with a CHF 600'000 mortgage, splitting into two tranches makes sense. For example, 60% fixed-rate (five to seven years) for cashflow security and 40% SARON for return optimisation.
With a portfolio of multiple properties, you can achieve diversification across properties: Property 1 with a fixed-rate mortgage, Property 2 with SARON, Property 3 mixed. This avoids the bank lock-in from tranching on the same property.
More on the topic of mortgage negotiation can be found in the article negotiating mortgages for investment properties.
Break-Even Calculation: When Does the Fixed Rate Pay Off?
The central question is: how much does the SARON need to rise for the fixed-rate mortgage to have been the better choice in retrospect?
The Calculation
Assume you face the choice:
- Option A: SARON, currently 0.95%
- Option B: Fixed-rate 5 years, 1.45%
The difference is 0.50 percentage points. On a CHF 600'000 mortgage, that is CHF 3'000 per year you currently save with SARON.
Over five years, you save CHF 15'000 with SARON if the rate stays constant. The fixed rate only pays off if the SARON averages above 1.45% over the five years.
More specifically: If the SARON stays at 0.95% in the first year, then rises to 1.2%, 1.6%, 2.0%, and 2.4%, the average is 1.63%. In this scenario, the fixed-rate mortgage would have been cheaper.
Whether such an increase is likely depends on the SNB's monetary policy, inflation, and economic developments. Nobody can reliably predict interest rates. But you can run the scenarios and decide how much risk you want to bear.
Strategies for Different Investor Types
The Conservative Investor
You have high leverage (70-75%), little liquidity reserve, and cashflow is your primary criterion. You sleep better knowing what you pay every month.
Recommendation: Fixed-rate, seven to ten years. Yes, you pay more. But you can plan with certainty and will not be caught off guard by rate increases.
The Return-Oriented Investor
You have lower leverage (50-65%), sufficient liquidity reserves, and can absorb temporary cashflow fluctuations. You want to exploit the historical interest rate differential.
Recommendation: SARON or tranching with a high SARON share. You consciously accept the interest rate risk and have the financial cushion to absorb rate increases.
The Portfolio Investor
You own multiple properties and think in consolidated numbers. Individual cashflow fluctuations are smoothed out by the portfolio.
Recommendation: Diversification across properties. Different terms and products, staggered maturities. This way, you never have the entire portfolio exposed to the same interest rate risk.
Check your personal affordability under different interest rate scenarios with the affordability calculator.
What the Yield Curve Tells You
The yield curve shows the relationship between term and interest rate. In normal times, it slopes upward: short-term rates are lower than long-term ones. This reflects the uncertainty of the future and the term premium.
Normal curve: SARON < 2 years < 5 years < 10 years. In this environment, the fixed-rate mortgage is more expensive, but the market is telling you: we expect rising rates.
Flat curve: All terms are at similar levels. In this environment, the fixed-rate mortgage is relatively cheap compared to SARON. It pays to take the security because the premium is small.
Inverted curve: Short-term rates are higher than long-term ones. This is rare and often signals an expected recession. In this environment, the fixed-rate mortgage can actually be cheaper than SARON.
Practical rule of thumb: The flatter the curve, the more attractive the fixed-rate mortgage. The steeper the curve, the more SARON makes sense in the short term.
Three Mistakes Investors Make When Choosing a Mortgage
1. Looking only at the current rate
SARON is cheap today, so I will take SARON. That is like buying the car with the cheapest per-kilometre cost without considering the insurance. The current rate is one data point, not the whole story.
2. Fixing for too long out of fear
A 15-year fixed-rate mortgage gives maximum security. But you pay a significant premium for it. And you are tied to this bank and this rate for 15 years. If you want to sell in seven years, the prepayment penalty will be expensive.
3. Forgetting the exit strategy
What happens if you want or need to sell the property in three years? With a SARON mortgage, that is no problem. With a 10-year fixed-rate mortgage, the termination fee can quickly reach CHF 20'000 to CHF 40'000. Always plan your mortgage strategy with an exit option.
Conclusion: There Is No Wrong Choice, Only Wrong Reasons
The choice between SARON and a fixed-rate mortgage is not a question of right or wrong. It is a question of your personal situation, your risk appetite, and your strategy.
If you lie awake at night because the SARON rose by 0.3%, then take the fixed rate. The additional cost is your sleep aid.
If you have the financial reserves to ride out rate fluctuations and take historical data seriously, then a SARON mortgage or a tranching strategy is worth considering.
And remember: you do not make this decision once but at every renewal. The choice needs to fit your current situation, not the one from five years ago.
Run different scenarios with the immometrics forecast calculator and check the impact on your return on equity.
Frequently Asked Questions
Can I switch from SARON to a fixed-rate mortgage during the term?
Yes, with most banks, a switch from SARON to a fixed-rate mortgage is possible with three to six months' notice. The reverse is more difficult: switching from a running fixed-rate mortgage to SARON requires paying the prepayment penalty. Some banks offer forward options where you set the switching date in advance.
Do investment properties pay higher mortgage interest than owner-occupied homes?
Yes, banks typically add a surcharge of 0.1 to 0.3 percentage points for investment properties. The reason: investment properties are considered riskier because the cashflow depends on rentability. Banks also require higher equity (25-30% instead of 20%), which reduces the risk for the bank but does not fully offset the surcharge. Always compare multiple offers and negotiate actively.
How often does the SARON change?
The SARON is calculated daily, but your effective mortgage rate only changes at the end of each interest period, typically every three months. The bank calculates the Compounded SARON over the entire period and invoices you for that amount. In daily life, you notice rate changes quarterly, not daily.
What happens to my SARON mortgage if the SNB raises the policy rate sharply?
Your mortgage rate rises accordingly, though not immediately but at the next billing date (quarterly). A policy rate increase of 0.5 percentage points means additional costs of CHF 3'000 per year on a CHF 600'000 mortgage. You should therefore always plan for a cashflow buffer that can absorb an interest rate increase of at least 2 percentage points. Use the affordability calculator to run stress scenarios.