Fixed rate or SARON? How to choose your mortgage

Every future homeowner asks the same question. Lock in a fixed rate, or follow the market with a SARON mortgage? The honest answer is not a forecast of interest rates. It is a reading of your situation and of how much risk you can live with.

A fixed rate buys peace of mind, at a price

With a fixed-rate mortgage, your payment is set for the whole term you choose. You know exactly what you will pay, which protects a family budget. The flip side is that you usually pay a premium for that certainty, and you are committed until the term ends.

SARON means following the market, and accepting it

A SARON mortgage tracks the Swiss reference rate, which is reset at short intervals. Historically its average cost has been lower than a fixed rate, but it moves, and your costs can rise from one quarter to the next. It suits households with room in their budget and the calm to accept the swings.

Often the right answer is both

Nothing forces you to bet everything on one formula. Splitting the mortgage into tranches, some fixed and some SARON, with staggered end dates, smooths the risk and avoids having to renegotiate everything in the same year. It is the structure, more than the either-or choice, that protects your budget.

• With a tight budget and a need for predictability, lean towards fixed.
• With a comfortable margin and tolerance for swings, SARON can pay off.
• For a large amount, mix tranches and stagger the end dates.
• If your term ends in 6 to 12 months, get competing offers before you renew.

The most common trap is neither fixed nor SARON. It is renewing by default with the same lender. Putting your mortgage out to competition a few months before it ends almost always improves the terms.