Swap agreements – Mitigating the risk of rising interest rates

Description

Abstract: For owners and investors, rising interest rates present a very real risk. Interest rate swap agreements can help mitigate this risk. One key benefit of swaps is flexibility — they come in unlimited forms. Many swaps are based on standardized forms, but they can be custom-made to fit the parties’ specific financing needs. If handled properly, such arrangements can benefit all parties. This article covers the ins and outs of swap agreements, such as the “plain vanilla” swap. This is when a party (usually the lender) with fixed-rate liabilities agrees to “swap” interest payments with a party (the borrower) with variable-rate liabilities, such as a mortgage. The article also addresses coverage against losses.