SARON: What the conversion means for mortgages

For the exact calculation of the compounded SARON, the NAG has developed seven different variants, three of which are currently used on the Swiss market:

Plain – the basic variant (used for UBS products)

The observation period and the interest period are identical. The interest rate is applied at the end of the period, usually at the end of the quarter.

Lookback – days set back

The observation period and the interest period are the same length, but the observation period is moved forward by one month, for example. If interest rates change in this advanced month, it will only have a third effect on the total interest rate. The bank and the mortgagee have enough time to settle and pay the interest.

Last reset – shifted period

The observation period is advanced by an entire interest period. As before, the interest rate is known on the start day of the interest period – as was previously the case with LIBOR. The disadvantage: an outdated interest rate is always used, so that banks lose money when mortgage rates rise, while mortgage borrowers pay too high rates when interest rates fall.

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