SARON (Swiss Average Rate Overnight) is computed by SIX Swiss Exchange from the volume-weighted average of secured (repo) overnight transactions in CHF. Because it is based on actual transactions rather than panel quotes, it is far more robust to manipulation than the discontinued Libor.
Saron mortgages typically reset every 1, 3 or 6 months. The borrower pays the compounded average Saron of the period plus a fixed margin (commonly 0.6–1.0%). Costs follow the SNB policy rate closely: when the SNB cuts, the next reset is cheaper; when it hikes, it is dearer.
Over long periods Saron mortgages have been cheaper than fixed-rate mortgages on average, but they expose the borrower to interest-rate risk. They are best suited to households with comfortable budget headroom who can absorb a sudden 1–2 percentage-point increase in mortgage cost.
Mortgage rate = Compounded Saron (over reset period) + Bank margin
On a CHF 600,000 Saron mortgage with compounded Saron at 1.20% and a 0.80% margin, the annual rate is 2.00% — CHF 12,000 per year. If Saron rises to 2.00% at the next reset, the annual cost jumps to CHF 16,800.