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CREDIT PRODUCTS
Overview
  Advance Restructuring
  Amortizing Advance
  Capped Floater Advance
  Classic Advance
  Classic Plus Cap Advance
  Collar Advance
  Corridor Advance
  Curve Flattener Advance
  Curve Steepener Advance
  Daily Cash Manager
  Discount Note Auction-Floater
  Expander Advance
  Flipper Advance
  Flipper Advance with Guaranteed Flip
  HLB-Option Advance
  HLB-Option Plus Cap Advance
  IDEAL Cash Manager
  Knockout Advance
  Letters of Credit
  LIBOR-Indexed Advance
  Member-Option Advance
  Rollover Cash Manager
  Slider Advance
  Swaps, Caps, and Floors
  Symmetrical Prepayment
  Transaction Hours
SPECIALS
CORRESPONDENT SERVICES
MORTGAGE PARTNERSHIP FINANCE
Funding-Strategy Models
PRODUCTS AND SOLUTIONS GUIDE
ACTIVITY-BASED STOCK REQUIREMENT

COLLAR ADVANCE

The Collar advance limits a floating interest rate to a predetermined range. The collar features a combination of an embedded interest-rate cap purchased, or “long,” and an embedded interest-rate floor sold, or “short.” The interest-rate cap sets the maximum rate the member will pay on the advance. The interest-rate floor offsets a portion of the cost of the cap, but it sets a minimum rate on the advance. It can be a cost-effective solution for the member seeking protection against higher interest rates.

 Key Features
  • Floating rate, nonamortizing

  • The cost of the term funding and the premium for the embedded collar feature is included in the advance rate.

  • Members specify the term, index, and cap and floor strike rates based on their own interest-rate risk management objectives.
   
Common Uses
  • Cost effective alternative to a Capped Floater advance to limit exposure to rising interest rates while giving up some of the benefit of falling interest rates.

  • Fund LIBOR-indexed assets.
   
Maturities
  • Out to 20 years.
   
Indices
  • Adjusts to either one-month or three-month London Interbank Offered Rate (LIBOR).

  • Resets on the anniversary of its disbursement (monthly or quarterly, equal to the term of the LIBOR), if it is a Boston business day.
   
Interest Calculation
  • Interest due on rate-adjustment dates.

  • Interest is calculated on an actual/360-day basis.
   
Minimum
  • $10 million minimum but smaller requests may be accommodated in special offerings.
   
Disbursement
  • Typically disburses in two business days. Collar advances can be requested until 1:00 p.m. on a Boston and London business day for a second-day (spot) disbursement.
   
Prepayment
  • The floating-rate funding is prepayable, in whole or in part, with fee with two business-days notice. However, a member may be charged a fee to make the Bank financially indifferent to the member’s decision to unwind the embedded Collar feature.
   
Risks
  • The Federal Home Loan Bank of Boston does not act as a financial adviser, and members should independently evaluate the suitability and risks of these advances. Please see the Collar Advance Primer for a discussion of the risks and other considerations associated with the Collar advance.
   
More Information

 

 

 
 
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