{"id":1856047,"date":"2023-04-11T13:31:56","date_gmt":"2023-04-11T11:31:56","guid":{"rendered":"https:\/\/ker2000.com\/?p=1856047"},"modified":"2024-09-26T18:24:17","modified_gmt":"2024-09-26T16:24:17","slug":"mortgages-what-is-interest-rate-risk-compensation","status":"publish","type":"post","link":"https:\/\/ker2000.com\/en\/interest-rate-risk-compensation\/","title":{"rendered":"Mortgages: What is interest rate risk compensation?"},"content":{"rendered":"

In this article, we will explain what interest rate risk compensation<\/strong> is and how it is calculated. Interest rate risk compensation is an important concept in the world of finance that can have a significant impact on your loans and credits. If you’re interested in learning more about how this compensation works and how it can affect you, keep reading to find out.<\/p>\n

What is interest rate risk compensation?<\/h2>\n

In a mortgage, one of the commissions that generates the most doubts among users is the interest rate risk compensation. This commission is only applicable to mortgages with a fixed or mixed interest rate, provided that the fixed rate period exceeds 12 months.<\/p>\n

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Definition:<\/div>\n

The interest rate risk compensation is the amount that a financial institution can charge to a debtor client of a mortgage loan if the client cancels it before the initially agreed maturity date, causing a loss to the institution if the cancellation occurs during a period of falling interest rates. This compensation also applies if total, partial, or subrogated repayments are made on these mortgages to another institution.<\/p>\n<\/div>\n

The interest rate risk compensation is used to minimize the risk that changes in interest rates will negatively affect the income and expenses of financial institutions. For example, if after a few months, the market interest rates decrease considerably and the borrower cancels the loan, the bank or savings bank may lose money because, in case of lending the refunded amount again, it will do so at a clearly lower interest rate. To compensate for this loss, this mechanism of interest rate risk compensation is implemented.<\/p>\n

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How is the mortgage compensation calculated in 2023?<\/h2>\n

The interest rate risk compensation is calculated based on a series of factors, such as the term of the operation, the applicable interest rate, the historical evolution of interest rates<\/a>, and expectations of their future evolution. In this regard, financial instrument valuation techniques are used to estimate the value of interest rate risk compensation.<\/p>\n

It should be clear that the commission applies exclusively for the time remaining to be paid during the fixed-interest period, as the commission is not applicable in periods of time that coincide with variable interest rates.<\/p>\n

To calculate the amount of the commission, you must apply the percentage of that commission to the sum of all remaining mortgage payments until the end of the fixed-interest period.<\/p>\n

What requirements must be met for the financial institution to charge interest rate risk compensation?<\/h3>\n

To be able to charge interest rate risk compensation, it is necessary to meet a series of requirements, which vary depending on the financial institution and the type of operation that has been contracted:<\/p>\n