Lender option borrower option or lender’s option borrower’s option (LOBO) is a long term borrowing instrument available in the United Kingdom. They involve periodic interest re-fixings, which incorporates two linked options:
lender’s option: option for the lender to set revised (usually higher) interest rates at predetermined interest reset dates such as annually.
borrower’s option: linked option for the borrower (exercisable only if the lender’s option is exercised) to pay the revised interest rate or to redeem the bond although that may involve exit fees.
They are provided by banks and the loan contract runs for between 40 and 70 years. There is no regulatory body responsible for overseeing their use.
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