Saron mortgage
Saron mortgages replaced Libor mortgages at the beginning of 2022. Find out what the Saron is, how it is calculated and how current Libor mortgage agreements will be affected.
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The Saron is significant for private individuals, as it determines the price of "money market" mortgages. The Saron mortgage replaced the Libor mortgage in 2022.
What is the Saron?
Saron stands for Swiss Average Rate Overnight. It is the interest rate charged by the Swiss National Bank (SNB) to banks and insurance companies for investments of excess liquidity or for short-term borrowing. Compared to its predecessor, the Libor, the Saron is more transparent because it is based on actual transactions. It is also considered more robust as, unlike the Libor, the loans to which it applies have securities deposited as collateral.
How is the Saron calculated?
Unlike the Libor, the Saron is purely an overnight rate. However, money market mortgages require rates for longer terms such as one, three or six months. For this scenario, the National Working Group on Swiss Franc Reference Rates (NWG) devised the Saron Compound rate. SIX publishes the Saron interest rate on a daily basis. You can calculate your personal Saron interest rate on the Comparis website.
Saron interest rate
Interested in a Saron mortgage? In our mortgage rate comparison, you can compare the interest rates of Saron mortgages and calculate your own personal rates.
Replacing the Libor
The Libor has been discredited due to its susceptibility to manipulation. In 2011, for instance, it was revealed that various banks had been charging excessive interest rates in collusion with each other in order to rig the benchmark rate. The SNB tasked the NWG with finding a replacement for the Libor. It had already advised banks to use the Saron as the new reference interest rate at the end of 2018.
Converting a Libor mortgage
Some Libor mortgages were automatically converted to Saron mortgages at the end of 2021, as defined by the mortgage agreements. Some banks have an automatic conversion process in place. Others stopped issuing Libor mortgages with terms going beyond the end of the Libor.
Difference between the Saron and the Libor
It can be assumed that the Saron will have to fall lower than the Libor because it is backed by securities as collateral against the risk of default in times of crisis. Historically, the Libor has also proven much more volatile than the Saron.
This article was first published on 05.09.2016