Say swap would be used to convert the payments of its portfolio of fixed-rate residential mortgage loans into a floating payment. Why might a manager consider using an interest-rate in which the notional principal amount declines over time?


1 Answer 1

  • Maybe because the underlying portfolio's notional may decrease over time?
  • Maybe because the loans are part of a private transaction in which the deal stipulates that notional is paid off over time?
  • Maybe its a pay-through structure in which the original mortgage loan notional is paid off over time and the notional portions are passed down the structure.

There can be a million reasons but to answer your question very directly:

The manager would engage in such swap in order to match the decreasing notional of the underlying loan portfolio. Simple as that. Life is often not that complicated.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.