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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Swap mark-to-market (MTM)

What is a swap's mark-to-market, and why does a lender count it?

ONE OF 366 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A swap's mark-to-market is what it would cost or pay to close it today: the present value of the difference between its fixed rate and the rate the market would now charge for the rest of its term. A borrower that fixed US$10m at 5% with three years left, when the three-year swap rate is now 4%, is paying US$100,000 a year above market, and closing the swap would cost about US$280,000. The bank counts a value in its own favour as exposure to the borrower, the borrower's accounts usually show it as a liability, and a refinancing that ends the swap has to pay it.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

A break cost is the charge for repaying fixed-rate loan money early; a swap's mark-to-market is the value of a separate hedging contract, which exists whether or not the loan is repaid and can be owed by either side.

// WORKED IN

// NEXT TO IT

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