How to find interest rate, "average life over _____ basis points"

DBisnolongerBB's picture
Rank: Monkey | 61

Hoping someone could shed some light on this topic. When a quote is received in commercial lending with the terms below, could someone ELI5:

5 Year Term
$15,000,000 Loan
30 Year Amortization (No IO)
Rate: 175 bps over the Average Life
No Prepay

The mechanics behind average life?
The reasoning for using it vs treasuries or swaps?
Who really quotes bps over Average Life? (Life Co, Funds, ect)

Comments (2)

Jan 12, 2019

sounds like a floating rate. just take the 5-year outward curve of the underlying security and take the average of that rate in your pmt calc. you willl then be able see what your theoretical rate is. oh, its the average rate plus the spread, so that way you can calc the estimted payments over the life of the loan.

Jan 13, 2019