Swap Rate

The Swap Rate is a fundamental concept in the financial market, especially for those interested in taking out a mortgage. But do you know exactly what it means and how important it is? We'll shed some light on the subject in this article.

To understand the Swap Rate, let's start by defining it clearly: It is an exchange of “risks”, in which the participants negotiate the returns of two different assets or commodities.

The Swap Rate is an agreement between two parties, i.e. between two companies, two investors, between a company and an investor, for example, with the aim of exchanging future payment flows. This exchange usually involves payments indexed to variable interest rates for payments indexed to fixed interest rates.

This rate is not set by the bank and is therefore a market rate, which has different values depending on the term to which it refers.

The importance of the Swap Rate

The Swap Rate is important for anyone considering taking out a loan. This is a flexible rate, as it allows the borrower to choose a higher risk of variation in installments.

However, it is always essential to consult a specialist to have the different credit options analyzed, so that you can help choose the best offer for you, the one that offers the best conditions with the lowest risk.

Swap rate on home loans

In the context of home loans, this rate is used to determine the interest rate on a loan. It is a daily rate.

There are two types:

The Decreasing Swap Rate, which if market interest rates fall, the loan installments also tend to decrease. The Increasing Swap Rate, which, on the other hand, if the market interest rate rises, the loan installments also tend to increase.

Are you thinking of buying a house?

Then a fixed rate is the best option. Banks set fixed rates using the interest rate swap market. In this way, they can exchange flows indexed to the six-month Euribor for a fixed amount over two to 50 years. This fixed rate is passed on to the customer.

Urbibarra - Promotor Imobiliário always advises our clients to seek out a specialist to deal with these issues related to mortgage rates, and to receive advice in order to find the best option for their lives.