What are SWAP rates?

SWAP rates are a mechanism through which lenders can acquire a fixed price for funding over  a specific period of time, normally from 1 year to 10 years – although most commonly 2, 3, 5 and 10 year SWAP rate programmes are used as these are then used to create fixed rate mortgage products for homeowners, property investors and  business mortgages.

SWAP rates will factor in what  the money markets see as the likely average rate over the chosen time period and can sometimes be cheaper than the prevailing variable rate and therefore result in a product (by the time the lender has added a margin) that is not only attractive but also provides the borrower with certainty of mortgage costs over the chosen period.
 
Some lenders will have sophisticated SWAP rate money management programmes and will be in a position to run a rolling fixed rate programme – ie offering a fix from the day of completion whereas some will work to a fixed end date such as fixed to 31 December 2011 which is more transparent to monitor.

As with any market , traders will occasionally “make the wrong call” and fixed rates based on unknown future events can look dramatically attractive – simply the price appears “too good to be true”. Check out the fees and any early redemption charges (ERCs) and if it still works, grab it before it goes. We may be entering one of those periods (end of 2008 into early 2009) so we will bring the best of the class to your attention via our email product alerts. If you aren’t already signed up and would like to keep informed as to the best products sign up now.

Don't forget you can keep up to date with the latest LIBOR and SWAP rates via our money markets page. You can also get our expert views and opinions on our Buy to Let blog which may give you a steer as to which buy to let mortgage product is right for you.