Reset frequency

Reset frequency

The frequency with which the floating rate changes.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Reset Frequency

In adjustable-rate loans, the rate at which changes to a loan's interest rate occur. Sometimes, the interest rate changes once a year, but some loans change interest rates as often as once a month or as seldom as every five years. The higher the reset frequency, the higher the financial risk for the homeowner. For example, if the reset frequency is once a month, a homeowner could find his/her mortgage payment increasing every month for five months before it goes down again. This ties up more of the homeowner's income and increases the likelihood of default.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
Basis and Interest Rate Risk: Basis risk for these transactions arises from any rate and reset frequency mismatch between interest rate indices for SAP and the securities.
From the fourth year onwards, floating rate borrowers can opt for 1.75 per cent above base rate, currently the effective rate being 9.25 per cent per annum; or a fixed interest rate of 3.5 per cent above the base rate prevailing at the time of reset, with a reset frequency of five years.
The formulas have several variables, including interest rates, reset frequency and the portfolio yield.
Basis and Interest Rate Risk: Basis risk for this transaction arises from any rate and reset frequency mismatch between interest rate indices for SAP and the securities.