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The swap rate.
Swap for the refinancing of mortgages.
The term swap or swap rate is used in relation to mortgages, mainly those of the fixed-rate variety. It applies to the interest rate swap (IRS) in Swiss francs for various terms (typically 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 from the account balances of its savers. But it can also do this via the international capital market and, in cases like this, will use a counterparty for refinancing purposes. When a specialist talks about the swap rate, they are referring to the underlying interest costs for a mortgage on the provider’s side. The individual margin for the financial institution is added to the swap rate, resulting in the mortgage rate for the property buyer.
Swap rate as an indicator of mortgage rate trends.
The swap rate is really useful for screening out the individual pricing policy of lending institutions and simply showing how interest rate trends have developed.
