Reference interest rates are important not only for monetary policy, but also for variable, interest-bearing money market mortgages. Whereas previously, these mortgages were LIBOR-based, they will be linked to the SARON from the beginning of 2022 at the latest. This is because the LIBOR is to be discontinued. Here are some key FAQs:
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Created on 20.01.2021
Goodbye LIBOR: everything you need to know about the Saron mortgage
The Saron mortgage is set to replace the LIBOR mortgage. And that’s a good thing. What homeowners need to know about the changeover.
Why is the LIBOR being replaced by SARON?
For a long time, the LIBOR was one of the world’s most important reference interest rates. LIBOR stands for “London Interbank Offered Rate” and is the average interest rate at which banks can lend each other money around the world without collateral. At the end of 2021, the LIBOR is set to be discontinued. As such interbank transactions became rarer and rarer following the financial crisis, the LIBOR was increasingly calculated based on expert assessments rather than real transactions, which meant it became susceptible to manipulation. The SARON will mark the return to a representative, transparent reference interest rate that truly reflects the market.
What exactly is the SARON?
SARON stands for “Swiss Average Rate Overnight” and is the new reference interest rate for the Swiss franc. The SARON is an overnight rate that is based on actual transactions on the Swiss money market. This makes the SARON more transparent than the CHF-LIBOR, which means it is manipulation-proof. The SARON isn’t actually new: it has been calculated and published by the Swiss National Bank and SIX, which also operates the Swiss stock exchange, since 2009. In recent years the LIBOR and SARON have stood at roughly the same level.
What does this mean for the mortgages?
The scrapping of the LIBOR means that the days of LIBOR mortgages are numbered as well. By the start of 2022 at the latest, Saron mortgages will be the only alternative offered by financial providers. PostFinance launched its Saron mortgage at the beginning of 2021. Like the LIBOR mortgage, the Saron mortgage is also a variable-interest money market mortgage, with fluctuating interest rates. It is suitable for homeowners who can handle interest fluctuations, and who have the right financial coverage.
In brief
- LIBOR will be discontinued worldwide at the end of 2021
- Up until then, LIBOR mortgages will be replaced by Saron mortgages
- Saron mortgage launched at PostFinance: in early 2021
