What are CHF swaps?

An interest rate swap (from English 'to swap' for exchange) is an agreement between two parties to exchange interest payments. In Switzerland, banks primarily use CHF swaps to hedge against fluctuating interest rates. If you take out a fixed-rate mortgage, the current swap rate is the bank’s “purchase price” for the money it lends you.

Fixed versus Variable: The exchange principle

In a swap, one side exchanges a fixed interest rate for a variable interest rate (usually the SARON).

• The bank wants to give you a 10-year fixed mortgage but must hedge itself against rising interest rates.
• It uses the swap market to exchange its variable costs for a fixed rate.
• This fixed rate is the swap rate.

So, your mortgage essentially consists of the swap rate (market price) and the bank’s margin (profit and risk share) combined.

Why the swap curve sets the direction

Swap rates change daily on financial markets, long before banks adjust their official display prices. They are therefore an excellent early indicator:

1. Rising swap rates: The market expects higher interest rates in the future. Fixed-rate mortgages usually become more expensive shortly thereafter.
2. Falling swap rates: Expectations for interest rates are dropping. This is often a good time to lock in long-term financing.

Especially interesting is the inversion: If the swap rates for 10 years are lower than for 2 years, the market expects an economic cooling. In such phases, long-term fixed-rate mortgages can be surprisingly cheap.

Advantages and disadvantages of swap orientation:

Advantages:

• Transparency: You can see the raw market price of interest rates without the bank’s margin.
• Timing: Those who observe swaps can recognize mortgage interest trends earlier than others.
• Comparability: You can assess whether a bank’s surcharge is fair.

Disadvantages:

• Complexity: Daily fluctuations in the capital market can be confusing.
• No guarantee: A low swap rate does not automatically mean that every bank will immediately pass it on one-to-one.

The choice between a SARON mortgage and a fixed-rate mortgage based on swaps depends on your personal strategy. Would you like to benefit from the currently low money market rates, or do you want to secure today’s conditions for the long term? We are happy to analyze the current swap curve with you to find the right solution for your financing.