What This Interest Rate Cap Calculator Does
| Feature | Description |
|---|
| Hedge Types | Interest Rate Cap, Collar (Cap + Floor), Corridor |
| Index Rates | SOFR, LIBOR (Legacy), Prime Rate |
| Loan Parameters | Notional principal, current rate, strike rate |
| Term & Pricing | Hedge term (0.5-30 years), premium in basis points |
| Forward Curves | Flat, gradual increase, steep increase, decrease |
| Cost Analysis | Upfront premium, effective cap rate, breakeven rate |
| Projections | 15-year interest and savings projections |
| Net Benefit | Total savings minus premium cost |
Key Calculations
| Metric | Formula |
|---|
| Upfront Premium | Notional × (Premium BPS ÷ 10,000) |
| Effective Cap Rate | Strike + (Annualized Premium BPS ÷ 100) |
| Breakeven Rate | Strike + (Total Premium BPS ÷ 100) |
| Cap Payout | Notional × (Index Rate – Strike) ÷ 100 |
| Net Benefit | Total Interest Savings – Premium Cost |
Example Calculation
$10M Loan, 5-Year Cap at 6.00% Strike, 150 bps Premium
| Metric | Value |
|---|
| Upfront Premium | $150,000 |
| Effective Cap Rate | 6.30% |
| Breakeven Index Rate | 7.50% |
| If SOFR rises to 8% | Cap pays $200,000/year |
Hedge Types Explained
| Type | Description | Best For |
|---|
| Interest Rate Cap | Protects against rates rising above strike | Borrowers expecting rising rates |
| Interest Rate Collar | Cap + Floor; limits both upside and downside | Borrowers wanting lower premium |
| Corridor | Two caps (lower strike sells premium) | Custom risk profile |
Forward Curve Scenarios
| Curve | Assumption |
|---|
| Flat | Rates stay at current level |
| Gradual Increase | +25 bps per year |
| Steep Increase | +50 bps per year |
| Decrease | -25 bps per year (rates falling) |
Typical Market Pricing (Basis Points)
| Term | At-the-Money Cap | 1% Out-of-Money |
|---|
| 1 Year | 50-100 bps | 25-50 bps |
| 2 Years | 100-150 bps | 50-75 bps |
| 3 Years | 150-200 bps | 75-100 bps |
| 5 Years | 200-300 bps | 100-150 bps |
| 10 Years | 300-500 bps | 150-250 bps |
How to Use
- Enter Loan Details — principal amount, current index rate
- Set Cap Strike — maximum rate you want to pay
- Select Hedge Type — Cap, Collar, or Corridor
- Choose Term — hedge duration in years
- Input Premium — cost in basis points
- Select Forward Curve — rate projection scenario
- View Results — costs, breakeven, savings projections
Important Notes
| Note | Description |
|---|
| Market Quotes | Premiums vary by market conditions |
| Counterparty Risk | Consider creditworthiness of hedge provider |
| SOFR Transition | LIBOR is being phased out; SOFR is standard |
| Documentation | Requires ISDA master agreement |
| Not Advice | Consult a qualified financial advisor |
Keyboard Shortcuts
Ctrl/Cmd + Enter — RecalculateCtrl/Cmd + R — Reset to defaults
