What does it mean to tranche a mortgage?

Tranching means splitting the mortgage into several parts with different terms or interest models – e.g. one fixed-rate mortgage tranche and one SARON mortgage tranche.

How many tranches make sense?

As a rule, 2–3 tranches make sense. More tranches increase complexity and make switching bank more difficult, as all tranches would need to mature at the same time.

What risks does tranching involve?

The biggest risk is provider lock-in: as long as one tranche is still running, switching bank is only possible with an early repayment penalty. In addition, the SARON tranche may become more expensive if interest rates rise.

Should I combine a fixed-rate mortgage and SARON?

The combination can make sense if you want to fix part of the interest costs while also benefiting from the often lower SARON. The prerequisite: you can cope with temporarily higher payments.

Splitting your mortgage into tranches: opportunities, risks and the tranche trap

Below CHF 250'000, splitting is not worthwhile — below that, the administrative effort outweighs the benefit. Usually 2–3 tranches are used, for example a fixed-rate mortgage (Festhypothek) plus SARON; on average the mix brings an interest advantage of around 0.50% over a pure fixed-rate mortgage. The greatest danger is the tranche trap: if tranches at the same bank run for different lengths (e.g. 5y + 10y), you are tied until the longest one expires. Rule of thumb: let all tranches expire within 12–24 months so you retain genuine bargaining power at renewal.

From what amount is tranching worthwhile?

Below CHF 250'000, splitting is not worthwhile — too small, the administrative effort outweighs the benefit. Between CHF 250'000 and 600'000, a maximum of 2 tranches (fixed + SARON) makes sense; above CHF 600'000, three tranches can diversify risk and cost well. Each tranche should be at least CHF 100'000–150'000, otherwise the administrative costs are out of proportion to the benefit.

How much does the fixed/SARON mix save in concrete terms?

In the article example, a 10y fixed-rate mortgage of CHF 800'000 at 1.75% costs around CHF 1'167/month, or CHF 14'000/year. If you split it into CHF 500'000 (5y fixed, 1.50%) plus CHF 300'000 (SARON, 0.85%), the costs fall to CHF 838/month, or CHF 10'050/year. On average the mix brings an interest advantage of about 0.50% over a pure fixed-rate mortgage.

What is the tranche trap?

If tranches at the same bank run for different lengths (e.g. 5y + 10y), you are tied until the longest one expires — Bank B will generally not accept a Schuldbrief in second rank. The consequence: at renewal the bank faces no competitive pressure and can demand up to 0.3% higher terms. Over the term, you can easily pay CHF 10'000–30'000 more than necessary as a result.

How do you stagger terms correctly?

Golden rule: let all tranches expire within a maximum of 24 months — ideally with an overlap window of 12–24 months. Example 5y + 6y instead of 5y + 10y: both expire almost simultaneously, so you can renegotiate or switch banks. Limit the SARON share to 30–50% and obtain comparison offers 12–18 months before expiry.

What does an early exit cost?

The prepayment penalty (Vorfälligkeitsentschädigung) is calculated as remaining debt × interest-rate difference × remaining term. Example: a CHF 500'000 mortgage, 1.5% interest-rate difference, 5 years' remaining term yields CHF 37'500. In many cantons it is deductible as mortgage interest; in the Canton of Zurich this is possible in principle, provided it is connected to a refinancing. You should factor in these costs.

Is a separate Schuldbrief per tranche worthwhile?

Creating a Schuldbrief costs about 1.5‰ of the Schuldbrief amount plus notary fees. Two separate Schuldbriefe incur around CHF 1'500 in additional costs, but make each tranche individually switchable to a different bank. With only one Schuldbrief, switching banks is only possible once all tranches expire. The additional costs can pay off many times over in a later switch.