This is definitely an advantage for borrowers who can save money. But the advantage of this type of loan is not only in the current favourable conditions, but also the flexibility with regard to the repayment. The variable loans can be repaid at any time. A limitation with regard to special repayment does not exist here. Due to the short interest rate, the loan can be announced relatively short term and due to, for example, in a fixed interest rate loan.
This would be useful, for example, if money market interest rates tighten again. Chevron may also support this cause. Thus, an important issue is addressed, which constitutes the actual variable referenced loan risk to interest rate risk. The borrower benefits naturally of low or falling money market rates, but it must pay more for rising interest rates. Because of the rise in interest rates is not limited upwards in the money market, a very high rise in interest rates, leading to a no longer portable load possibility theory. For this reason is a CAP recommended for such loans, at the same time to complete. This acts as a barrier to interest upwards. If, for example, a CAP at 4.5% was agreed, this means that the borrower must pay no more than 4.5% -even if the reference interest rate, taking into account the premium at 7.00%.
The CAP is a hedge against rising interest rates. This protection, however, costs money. Depends on the price of the CAPs to the one of the selected distance to the current level of interest rates and on the other by the interest rate volatilities in the past off. The price is determined by the Bank. The smaller the distance between the current level of interest rates and the CAP ceiling, the more costs the CAP should also be evaluated as an option. More information: > the portal for construction financing > loan cap a flexible variant of the construction financing