Time to hedge interest rate exposure?

Escrito el 4 julio 2009 por Antonio Rivela Rodríguez en Uncategorized

Hi all,

Time has come: 1y. Euribor moving towards 1.5%… Have you ever thought about fixing your interest rate in your floating rate loan or mortgage?

Let me briefly explain how to do it. This is not meant to be technical but rather a quick note on a “do it yourself” fashion.

1. Look at the duration of your loan. Not to be confused by maturity! Duration of a “french loan” mortgage with 12/15 years should be around 5/7 years because of the decreasing nature of “french loans”.

2. Look at the fixed swap rate that matches the obtained duration in the following website:

Double click for swap rates

3. For example if duration if 7 years, your brand new hedged rate will be slightly above 3%, lets say 3% for the sake of simplicity.

4. You will call your bank and close a swap where you pay every year 3% and you receive 1y. euribor (in order to pay your mortgage interest payment), so effectively you are paying a 3%.

5. Have you noticed of the negative carry nature of swaps? You could be paying a 1.5% only… That’s the price of being safe!

I hope its useful for you! See you next…


rabaty 31 agosto 2013 - 15:30

You should check this out…

I saw this really great post today….

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