Interest rate swaps explained

1 February 2022   /   2 min read

Commercial real estate is typically financed with a mix of debt and equity. Interest is the single largest cost for our funds and schemes and is typically made up of a fixed margin plus the floating interest rate. 

Having the agility to manage the cost impact of interest rates is a critical ingredient in maintaining and enhancing the resilience of your investments in a changing economic landscape. 

An interest rate swap is a commonly used tool in the active management of interest rate exposure in the commercial property sector. At any time during the term of a loan, Oyster has the ability to enter into a contract with our banking partners whereby any percentage of the floating interest rate on a fund or scheme may be swapped to a fixed rate for a period of one to five years. 

Typically, at least 50% of the total borrowing costs will be fixed by way of interest rate swap and, where possible, Oyster aims to fix the interest swap period in alignment with the term of the loan. 

Delivering good investment outcomes for our customers means maximising growth opportunities and minimising risk exposure. In an increasing interest rate environment, our investors benefit from the rate ceiling created by the interest swap agreement and the certainty of cashflow that this creates for the fund or scheme. 

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