What is it
The Interest Rate Swap agreement enables a business to convert its loan repayment interest rate from floating to fixed, without amending the loan terms. This way, the business is protected against a potential future increase in interest rates and can know with certainty the total loan repayment cost. This transaction is carried out in parallel to and independently from the original loan. The terms of the agreement, the nominal principal for each period and the payment dates are tailored around the terms of the loan.
The act may be reversed or amended at any time, based on current market conditions.
Features and benefits
- Protection against a potential future increase in interest rates.
- Flexible transaction terms (term, amount, repayment plan, interest-bearing period).
- Fixed total loan repayment cost for the remainder of the loan term.
- Parallel and independent transaction (the original business loan agreement remains as is).
- Option to reverse or terminate the transaction earlier.
- Option to step up the fixed interest rate per interest payment period.
Example
A business with a 5-year loan for €5,000,000, with floating interest rate (6-month Euribor + spread) wants to secure a fixed borrowing rate for the entire or a part of the loan amount without amending the loan agreement. The business enters into a 5-year agreement with Eurobank to collect the floating 6-month Euribor and pay a fixed 0.45% interest rate on the nominal transaction amount.
This way, the business indirectly converts its loan from a floating rate (6-month Euribor + spread) to a fixed rate (0.45% + spread).
The information we provide about Eurobank products and services is general and non-binding.