How to use the Symmetrical Prepayment Advance
posted on Wednesday, November 2, 2016 in Advances
Brett L.A. Manning, CFA, Vice President/Director Member Strategies
Brandon Casey, Business Development Analyst
An increasing percentage of our members are deciding to grow during this lower-for-longer campaign and do so with organic originations, whether they are residential or commercial in nature. One facet of the risk/return decision that we can assist with is hedging the unwanted interest rate risk from such originations using our Symmetrical Prepayment Advances. The Symmetrical Prepayment Advance can fund a wide variety of your fixed rate assets, and also hedge the risk of deposit erosion and the effects of deposit dis-intermediation when interest rates rise.
The Symmetrical Prepayment Advance provides stable funding that is not rate-sensitive and includes a feature which allows members to monetize the value associated with rising rates and the positive impact this can have on liabilities. To realize this value, members need to prepay the advance prior to contractual maturity which allows for prepayment credit to be paid should rates rise sufficiently enough. This informative white paper will help you:
- Understand how the symmetrical advance compares to a standard advance,
- See simulated examples of the symmetrical advance at work, and
- Examine the impact on your investment portfolio.