Diccionario económico - Mortgage clips or swaps

Mortgage clips or swaps

Mortgage clips or swaps are a type of financial exchange contract, through which benefits are exchanged between the financial institution or bank and the customer.

These agreements can be signed at any time during the life of the mortgage, through a separate document in which the borrower ensures the maximum and minimum interest rates they will pay during the period of the financing. The bank undertakes to pay the difference when the Euribor exceeds the agreed limits;, but the borrower is responsible for compensating the difference if the Euribor is below the agreed limits.

To put it another way, in mortgage swaps, customers exchange a variable interest rate for a fixed rate, depending on the type and model of contract used.

This system hedges the customer against changes in interest rates, especially when they increase. By contracting the mortgage clip, if interest rates rise above the limit agreed in the swap agreement, the bank is responsible for the excess interest. If interest rates fall below the limit agreed in the mortgage clip, the customer pays the difference to the bank.

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