On 20 June, the Swiss National Bank (SNB) lowered its key interest rate by another 0.25 percentage points to 1.25%. Here is an overview of the most important issues related to the current interest rate cut.
The 'Best Offer’ is determined on the basis of current interest rate trends and takes into account both Saron and fixed-rate mortgages.
What is the key interest rate?
The key interest rate is a monetary policy instrument and is set by the central banks. The key interest rate serves as the general basis for interest rates and indicates the interest rate at which commercial banks can borrow money from the central bank.
The SNB was the first G10 central bank to cut its key interest rate by 0.25 percentage points in March 2024. Due to the improved inflation outlook, subdued growth forecast and political uncertainties in Europe and the associated appreciation of the Swiss franc, the SNB lowered its key interest rate by another 0.25 percentage point in June. The interest rate cut by the ECB at the start of June is likely to have further supported the SNB’s decision-making process.
Any changes to the key interest rate affect mortgage rates and therefore also the demand for mortgages. Following the latest key interest rate adjustment, long-term fixed-rate mortgages are once again as expensive as SARON mortgages. Swiss Life provides an overview below of the key issues surrounding the key interest rate cut.
What will happen next to the key interest rate?
Swiss Life expects that SNB will not cut its key interest rate further this year and that short-term interest rates will trend sideways until the end of the year. We would only expect to see a further cut if the economic situation were to deteriorate or if inflation expectations were lower. Swiss Life currently expects medium- to long-term CHF interest rates to trend sideways.
How can property owners benefit from the fall in interest rates?
The latest rate cut will have a direct impact on SARON mortgages. Borrowers with a SARON mortgage can look forward to paying less interest. SARON mortgages are now again as expensive as fixed-rate mortgages. Borrowers should now carefully look at the pros and cons of SARON and fixed-rate mortgages in order to select a mortgage solution that is best for their own financial situation and meets their individual needs.
With Swiss Life, you can extend your expiring mortgage early up to 18 months prior to the end of the term. The interest surcharge for early extensions is still very low for many terms or is zero in some cases.
Should I wait before extending my mortgage?
There is no general answer to this question. Whether a mortgage should be extended early depends on the expected interest rate trend for the central banks, market participants’ expectations and the borrower’s individual financial situation.
Assuming that current interest rates will continue to fall and you are prepared to accept a certain amount of fluctuation in the interest you pay, it may be worth waiting for the time being, or taking out short-term mortgages.
However, if you want security, your financial situation would not allow you to pay more interest or if you expect interest rates to rise, you should consider extending the mortgage early via a fixed-rate mortgage with a relevant term. It may be worthwhile extending your mortgage early because fixed-rate mortgages already partly reflect the lower interest rates and the interest surcharge for early extensions is very low.
For new mortgages, what types are currently recommended?
This question depends in particular on the individual borrower’s risk appetite and financial resources. If the need for security prevails or there is little room for financial manoeuvre, then it is advisable to take out a fixed-rate mortgage. In addition, long-term fixed-rate mortgages are currently almost as expensive as SARON mortgages. So why not secure an attractive interest rate for the next few years and get rid of any uncertainty?
If the borrower is financially able to tolerate certain fluctuations and assumes that the SNB will lower key interest rates further, shorter terms and the addition of SARON mortgages may pay off.
What else should I keep in mind as a mortgage borrower?
It is always a good idea to get a personal consultation on the topic of mortgages. The experts at Swiss Life will walk you through every market situation and support you throughout the entire financing process, offering expert advice on residential property and mortgages. This will help you have enough money to buy your dream home in a self-determined manner.
How can I extend my mortgage early?
Most banks and insurance companies allow you to extend your mortgage between six and 24 months before the end of the current term. To extend your mortgage, you take out a new mortgage as of a specific date, which secures the current interest rate, regardless of how high or low the interest rate will be on the date your mortgage term expires.
Obtain advice now
We will explain the pros and cons of SARON, fixed-rate and green mortgages in a consultation and determine which product and term best suit you and your financial needs.
