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Maturity Cap: R F R F R P K
Maturity Cap: R F R F R P K
04
Maturity Cap
Mortgage loans or loans to municipals often consist of a fixed maturity and constant payments that
include interests (fixed rate) and amortisation. During the tenor of these loans the interest payment
part of the fixed payments are decreasing whereby the amortisation is increasing. In most cases
these loans will amortise to zero until maturity. If a floating rate is the basis for the interest part of
the fixed payments, the whole loan could be (a) amortised before maturity or (b) not reach the
agreed final amount (e.g. zero). In case (b) a maturity cap will provide the buyer of this instrument
with a final payment that is
Details
Start Date Spot, or Forward Start
Advanced Maturity The transaction will terminate and no further payments are
due if the remaining capital has reached the agreed final
amount (e.g. zero) before maturity of the trade
Payment at maturity If the remaining capital at maturity is greater than the prede-
fined capital, the buyer of the Cap will receive from the
seller of the Cap this different amount