Index Amortizing Swap

(redirected from Index-Amortizing Rate Swaps)

Index Amortizing Swap

An interest rate swap in which the notional principal changes according to the movement of an underlying interest rate. Index amortizing swaps are often associated with collateralized mortgage obligation. The swap is designed to protect the fixed rate receiver from prepayment risk on a CMO, but the protection is not always effective. A common underlying interest rate used in index amortizing swaps in LIBOR.