Libor mortgage

A Libor mortgage is based on the Swiss franc Libor. The Swiss franc Libor is the inter-bank interest rate for short-term funds in Swiss francs and it reflects the general level of interest rates for short-term funds in Swiss francs. You can set up a Libor mortgage at any time; when you do so, you select a specific fixed interest rate period. At the end of this period, the interest rate is then adjusted to current conditions on the money market, i.e. the Swiss franc Libor. The interest rate is comprised of the CHF Swiss franc Libor rate plus a fixed margin.

The fixed-rate period on a Libor mortgage is only short; once it's ended, the rate will immediately track the changed conditions on the financial markets. This is very welcome when interest rates are falling, but undesirable when they’re going up. You can protect yourself against rising interest rates by converting your Libor mortgage into a multi-year fixed-rate mortgage at the end of the fixed-rate period. The interest rate will then be fixed for the entire term.

Combining multiple mortgages with different terms minimizes the risk of having to renew your entire mortgage when interest rates change unfavorably.

Interest rate: dependent on the fixed-rate period selected (3 or 6 months)
Length: 3 years
Interest rate risk: interest rates will fluctuate during the entire term
Reference interest rate: based on the Swiss franc Libor* that applies to the selected fixed interest rate period

*The Swiss franc LIBOR (London Interbank Offered Rate) that determines the new interest rate is specified in London at the beginning of a fixed interest rate period. Please note that the Swiss franc Libor rate used to calculate the interest rate can never be lower than zero.