Floating-rate floor and cap stress tool

How this calculation works

Method and assumptions

Apply the floor to the loan coupon and retain that gross note payment/amortization. Separately estimate annual cap receipts on constant notional equal to opening principal: notional times positive reference-minus-strike. Subtract receipts from gross debt cash and add entered hedge cost; gross note DSCR and net cash coverage remain separate. Calculate baseline and up/down index shocks.

Worked example

For $3 million interest-only debt, a 4% index plus 3% spread gives 7% note interest and $210,000 annual gross debt service. A 3% index floor makes the 2% index scenario cost $180,000. At a 6% index, gross debt service is $270,000 and the 6% cap strike pays nothing. At an 8% index, the same note would require $330,000 while the separate cap pays $60,000, leaving $270,000 net debt cash before entered hedge cost. The cap does not amend the note coupon.

Before using the result

Know the boundaries

• Educational scenario, not a quote, commitment, approval, appraisal or payoff statement.
• Defaults and thresholds are editable illustrations; the executed documents and lender underwriting control.
• Idealized separate-hedge cash stress, not derivative pricing or a contractual loan-rate ceiling. Index and all-in references are distinct hypothetical hedge bases; actual documents must support the selected basis. This model requires effective strike at or above the effective floor.
• Constant cap notional equals opening principal for the full year; it does not decline when the loan amortizes. Rates are constant within each scenario and settlement timing is assumed matched. Actual notional, premium, counterparty, expiry and basis differences require separate review.
• Cap receipts do not reduce the contractual note payment or determine lender covenant treatment. Annualized hedge cost is an entered cash-comparison allocation, not a quoted cap premium or APR.