I have a loan on my house, about 250.000€, to be paid within 30 years. I've an interest rate of EURIBOR + 1,25%.
Now, to get additional insurance, I'm buying an interest rate cap at 6,5% for about 1500€ once, for the next 20 years. That makes me feel safe, since I'm quite sure I can always pay back 6,5% and thus will never have to sell the house.
My question is: Isn't 1500€ kind of cheap for this kind of safety? Note also, that the same cap at 5% is already significantly more expensive, about 8000€.
In other words, the market seems to think that it is really kind of unlikely, that the EURIBOR will raise that high.