Day count conventions – an overview
When taking out a mortgage, you’ll come across the term “day count convention”. But what does this mean? Comparis explains the various conventions.
07.11.2024
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1. What is a day count convention?
The term “day count” is a method for calculating interest. It indicates the number of days over which interest is applied. Swiss mortgage lenders usually calculate the amount of mortgage interest either using the national method or the international method.
2. Swiss day count convention: national method
In the case of the Swiss day count convention, each month is calculated at a flat rate of 30 days, which results in a year with a total of 360 interest days. This means that mortgage holders in Switzerland pay 5 to 6 days less interest every year, as the interest year is shorter than the actual calendar year.
Good to know: in Switzerland, the Swiss day count convention is mainly used. For Saron mortgages, the international convention is sometimes applied.
3. International day count convention
The international method results in a higher annual interest burden than the national method.
This is because it calculates the interest burden based on the effective number of days in the year. Accordingly, the interest rate is multiplied by 365 or 366 days and then divided by 360 days.
Calculation for a calendar year: interest rate × 365 / 360
Calculation for a leap year: interest rate × 366 / 360
Interest is a charge for borrowing money. The interest rate expresses this amount as a percentage. Mortgage borrowers owe their bank this amount for being able to access a mortgage.
As a general rule, mortgage rates are negotiable. Comparis provides an overview of mortgage interest rates by term and lender.
Which day count convention is used where?
In Switzerland, most mortgage lenders work with the national day count convention. There are a few exceptions, however. Therefore, it is essential to check which one is used when you request quotes.
4. Example calculation for national and international day counts
Scenario: let’s say you take out a mortgage for 600,000 francs at an interest rate of 1.4% over 10 years.
Calculation using the international day count convention
When calculating according to the international day count convention, the interest payable in a leap year is: 600,000 × 1.4% × (366/360) = 8,540 francs.
In a normal year, the interest payable is: 600,000 × 1.4% × (365/360) = 8,516 francs.
If there are three leap years, you pay a total of 85,236 francs for 10 years.
Calculation using the Swiss day count convention
The Swiss day count convention is always based on 360 days in a year. When calculating according to the national day count convention, the interest payable per year is 600,000 × 1.4% × (360/360) = 8,400 francs.
So you pay a total of 84,000 francs over 10 years. This is 1,236 francs less than if you use the international day count convention.
This article was first published on 26.10.2021
