The term “swap” or “swap rate” is used in connection with mortgages, especially fixed-rate ones. This is the interest rate swap (IRS) in Swiss francs for various terms (usually 1 to 30 years). The swap rate reflects the refinancing rate for banks on the international capital markets.
Typically, a financial institution finances a mortgage with the credit balances in its savers’ accounts. However, it can also do this on the international capital market, in which case it will refinance through a counterparty.
When a mortgage specialist talks about the swap rate, they are therefore referring to the interest costs of a mortgage on the provider’s side. The financial institution’s individual margin is added to the swap rate, giving the mortgage rate for the property buyer.
This makes the swap rate a great way of hiding the lender’s own pricing policy and monitoring the interest rate trend in isolation.
It is called a “swap” because contracting parties A and B are “swapping” interest for the agreed term – at a cost. Contracting party A pays a fixed interest rate to contracting party B but receives the current money market rate (SARON, previously LIBOR) in return. If the money market interest rate is below the agreed rate, contracting party A pays the difference; if it is above, A receives the difference from B.
*The Saron value shown is composed of the current Saron overnight and the individual margin of the mortgage provider. Generally, the interest rates shown are the best rates currently available. Your personal interest rate may vary based on your loan-to-value ratio, affordability, mortgage volume and property location.Calculate your personalized rates