Lock in fixed loan costs

Interest Rate Swap - IRS with floor/cap

  • Free yourself from the uncertainty of a variable interest rate and pay a fixed interest rate
  • Lock in completely stable and pre-determined loan costs
  • Avoid costs in case of negative EURIBOR

Advantages of entering into an interest rate swap with floor/cap

  1. Avoid large costs in case of negative EURIBOR, by fixing variable costs at 0% 
  2. Eliminate interest risk, because the variable loan interest rate (EURIBOR) is replaced by a fixed one
  3. Lock in stable and predictable costs, because future interest payments are known in advance
  4. Avoid potential loss which may occur due to the growth of interest rates on loans with a variable interest rate

Interest rate swap with floor/cap

An interest rate swap with floor/cap is an upgrade of the standard interest rate swap limiting the variable interest rate which is paid in the interest rate swap transaction.

Calculation of interest flows and entering into the transaction itself is the same as in case of a standard interest rate swap, except for the client, for example, additionally fixing the maximum amount of EURIBOR interest rate which is paid and received.

The most common example is when a client enters into an interest rate swap for a loan whose EURIBOR is limited to 0%, for the purpose of complete elimination of impact of the variable component of the price and the adjustment of cash flows from the interest rate swap and loan, and he/she additionally upgrades the interest rate swap by limiting EURIBOR to 0%.

In order to enter into this transaction, it is necessary to:

Open an account with Erste Bank

Enter into a Framework Agreement

Complete a Client Categorisation Questionnaire

Be approved a limit (amount and period)

Risks associated with this financial instrument

The opportunity to enjoy the benefits of falling interest rates is limited.

Change of market interest rates may lead to a decrease in the market value of the purchased financial instrument.

A sale of the purchased financial instrument may lead to additional costs, depending on the situation in the market.

If you are interested in the product or if you need additional information, please contact us or send us an inquiry

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