You are looking for a new way to finance your home? You might want to take a closer look at the SARON mortgage. The Swiss National Bank has announced that it will use SARON as the reference interest rate for mortgages.
What this means for you? A SARON mortgage can offer you a flexible interest rate option based on current market conditions. You can always be sure that you will receive the best possible interest rate.
But what is an ABS and how does it fit with the SARON mortgage?? The ABS stands for asset-backed securities and is a type of bond that is backed by assets such as mortgages. With a SARON mortgage, you can now also invest in an ABS based on SARON.
Learn more about the advantages that a SARON mortgage in combination with an ABS can offer you in this article. We also explain how you can make such an investment and what to look out for.
What is a SARON mortgage?
A SARON mortgage is a special type of mortgage loan that depends on the Swiss benchmark interest rate SARON. The SARON is a daily interest rate calculated on the Swiss money market. It is a replacement for the LIBOR interest rate, which has been abolished.
With a SARON mortgage, the interest rate is regularly adjusted based on the SARON rate. Since SARON is very stable compared to other interest rates, a SARON mortgage offers a certain level of security and stability for homeowners.
The SARON mortgage is also an important part of the ABS innovation. The ABS is a security method for mortgage loans used by many Swiss banks. By adopting a SARON-based ABS, the risk of mortgage loans can be better managed.
- Advantages of a SARON mortgage:
- Stability of the interest rate through a stable benchmark rate
- Possibility to adjust the interest rate on a regular basis
- Part of the modern mortgage loan protection system
Overall, the SARON mortgage offers an attractive and modern alternative to conventional mortgages, especially when it comes to risk management for banks. If you want to take out a mortgage in Switzerland, you should definitely consider the SARON mortgage.
Advantages of a SARON mortgage with ABS
A SARON mortgage offers the advantage of being linked to the SARON reference interest rate. Unlike a mortgage with a fixed interest rate, the SARON interest rate is variable and is recalculated daily. This allows borrowers to benefit from a more flexible interest rate structure.
Furthermore, a SARON mortgage with ABS offers the advantage of more transparent and fairer interest rates when loans are granted. A fixed interest rate is usually set higher at origination to cover a risk premium. With a SARON mortgage, on the other hand, the interest rate is not fixed until the contract is signed and is therefore fairer to the borrower.
In addition, borrowers can expect more favorable borrowing rates with a SARON mortgage, as the SARON rate is generally lower than the LIBOR rate. In the case of an ABS securitization with a SARON mortgage, a better return can thus be achieved.
- Advantage 1: Flexible interest rate structure thanks to variable SARON mortgage
- Advantage 2: More transparent and fairer interest rates
- Advantage 3: More favorable lending rates due to lower SARON interest rate
In summary, a SARON mortgage with ABS offers many advantages, which are reflected in particular in a more flexible and fairer interest rate structure as well as more favorable lending rates.
The ABS: What is it?
ABS stands for asset-backed securities and is a form of asset securitization. In this process, various assets such as real estate loans or credit card debt are bundled and sold to investors in the form of securities. The securities are repaid from future payments made by the borrower on the underlying assets.
The ABS is a way for lenders to convert their loans into cash and for investors to invest in different types of assets. However, ABS also involves risks. ABS played a major role in the 2008 financial crisis, as many assets were bundled in these securities and the risk was transferred to investors in the event of defaults by debtors.
The SARON mortgage is a newer form of mortgage in Switzerland that is based on the SARON (Swiss Average Rate Overnight) reference interest rate. By using this set, the financing becomes cheaper for the borrowers. However, it is difficult for banks to find a suitable interest rate for their loans. One way to finance is to use SARON ABS, which is the securitization of SARON-based mortgage loans in the form of securities.
Securitization of SARON mortgages as SARON ABS may be attractive to investors, as they can invest in various real estate loans while benefiting from the SARON reference rate. However, investors should be aware that ABS and, in particular, mortgage securitization are also associated with risks.
The ABS new with a SARON mortgage: What’s behind it??
The ABS with SARON mortgage opens a new possibility for credit institutions to finance their mortgage loans. The SARON mortgage is a mortgage whose interest rate is calculated on the basis of the SARON (Swiss Average Rate Overnight). The SARON reference rate has been the official reference rate for Swiss franc securities since 2021, replacing the LIBOR reference rate.
The ABS (Asset Backed Securities) structure has been a common financing instrument for credit institutions for many years now. This involves bundling loans, such as mortgages, and selling them to investors in the form of securities. Loan repayments serve as a source of income for investors.
By using the SARON reference rate as the basis for calculating mortgage rates, lending institutions can offer their mortgages at a lower interest rate. In addition, the SARON mortgage also offers greater flexibility in adjusting the interest rate, as it is recalculated daily. This makes the SARON mortgage particularly attractive to borrowers.
The ABS with SARON mortgage thus represents an innovative combination of a proven financing instrument and a modern reference rate. It offers many advantages for both credit institutions and borrowers and contributes to the further expansion of the Swiss financial market.