Interest rate cover: via SWAP
A customer has the following loan:
- Sum: €3 million
- Term: 5 years
- Interest rate: 12-month Euribor + 1.00%
- Amortisation: Single on maturity
In this situation, the customer does not know the financial costs it will have to meet. These costs will depend on 12-month Euribor over the next few years and 1% will be added to that figure.
So:
|
12-month Euribor |
Cost to customer WITHOUT coverage (1% margin) |
|
| Today |
2,40% |
3,40% |
|
| In 1 year |
3,40% |
4,40% |
|
| In 2 years |
4,60% |
5,60% |
|
| In 3 years |
5,50% |
6,50% |
|
| In 4 years |
5,00% |
6,00% |
|
Caja Navarra suggests the following coverage operation:
- Sum: €3 million
- Term: 5 years
- Amortisation: Single on maturity
- Customer receives/ Caja Navarra pays: 12-month Euribor
- Customer pays/ Caja Navarra receives: Fixed Rate 3.70%
- Settlement: Yearly
On each date of payment, the net position between the interests to pay and interests to receive is settled, which for the customer will be:
- If 12-month Euribor > Fixed rate: The customer receives the difference.
- If 12-month Euribor < Fixed rate: The customer pays the difference.
For example:
| 12-month Euribor |
SWAP settlement 3.70% |
Cost to customer WITH coverage (*) |
|
|
| 2,40% |
-1,30% |
4,70% |
|
| 3,40% |
-0,30% |
4,70% |
|
| 4,60% |
0,90% |
4,70% |
|
| 5,50% |
1,80% |
4,70% |
|
| 5,00% |
1,30% |
4,70% |
|
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