An interest rate swap allows you to transfer your interest rate exposure to the bank. We then provide you with a fixed swap rate to pay each quarter, and Anglo Irish Bank accepts your floating rate exposure. This provides you with complete protection against any subsequent interest rate movements.
A swap removes the uncertainty of the market and you are locked into a set repayment schedule. If you want to make an early repayment or break the swap completely, an economic cost or benefit would apply depending on where the prevailing interest rates where. However, swaps are portable instruments that you could then apply to other assets in your portfolio.
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