Loan duration

Options to choose from

All buyers, when locking their rate and contract duration, ask themselves the same question : have I selected the right option ?

Below, we will explain the options that are available to you as well as a few tips. However, it is impossible to tell you the exact choice to make, since every scenario is unique.

Mortgage choices

Before choosing the lenght of your contract, it is imperative to understand the models offered by mortgage providers :

• Variable rate

This model is non biding (meaning that you can pay back the loan with no fees at any moment), but the rate applied is high

• Saron rate (called in the past « Libor rate »)

This model follows the market rates, and usually is updated every 3 months. This strategy can be very efficient, but no guarantee will be given to you for future rates. A biding contract ranging from 1 to 5 years (with this contract, you assure the mortgage provider to maintain the Saron system for the length of the contract or to switch it to a fixed rate during the contract) is normally applied (depending on the mortgage provider)

• Fixed rate

This model has been favored by most buyers these past few years, as fixed long term rates in Switzerland were historically low. Why take on a non guaranteed Saron rate for 0.9% when a 10 years fixed rate mortgage is being offered to you for 1% ? Even though long term rates have spiked these past few months (from 1% on average for 10 years to 2.2% on average for 10 years), this model remains greatly appreciated by buyers, especially when purchasing a main residency. Long term rates are still very low compared to their historic averages, and the security they offer (knowing exactly what you will pay during the contract duration, assuring yourself that if rates keep on going up during the following years, you will not be impacted while in your contract), still makes it a buyers favourite.

The right strategy

As stated at the beginning of the article, there is no unique right choice to make.

• Are you planning on selling your property in the short, the medium, or the long term ?
• What are your expectations on how rates will progress these next few months/years ?
• Are you risk adverse?
• Would you mind having to follow closely the progression of loan rates ?
• Could you undertake financially an unexpected spike in rates ?

These are all questions we will assess with you before deciding which strategy to put in place.