A clip or necklace is understood to be a contract that aims to cover the liabilities of a company, or a certain part of said passive, as can be, a mortgage loan. In the latter case, we would be talking about the mortgage clip or necklace,
The object of the contract called clip, is to pay a more or less determined interest in a period of time. The way to do this is by establishing a interest rate maximum and a minimum interest rate for said period, provided that the interests agreed within the mortgage loan are variable.
How does the mortgage clip or necklace work?
In the contract it is agreed that the difference between the interest that is owed and that contributed as a minimum maximum in the clip contract, corresponds to satisfy it or the bank.
However, this is not usually the only thing that appears in the clauses, but the bank. Although it agrees to the foregoing in the event that the Euribor, exceeds the agreed limit; is not responsible for what happens in the event that the Euribor is below the same limits. And, it is in this case, when it will be the mortgage debtor who must make up the difference. It is usually sold as a hedge because, de facto, what it produces in economies that tend to inflation that is, the greater stability of interest rates for the mortgage debtor.
The problem that arises or may arise is that if the Euribor falls below the agreed limits, it is the mortgage debtor who must assume the payment of an interest rate that significantly exceeds the index plus the differential. This situation is normally due to the lack of asymmetry in the determination of the upper and lower maxima within the clip contract itself.