[Toddsterpatriot]

I am familiar with loans which provide that, if several payments are missed, the entire loan balance is due at once. Now you did not explain whether any principal is being paid on the loan or not (is it an interest-only loan?).

It's not a loan. It is a swap of a stream of interest payments.

[DeaconBenjamin]

You say:

It's not a loan.

But you start out your example by stating:

Say you loaned out $1,000,000 at an adjustable rate, say 3 month Libor plus 2 points.

Is this a loan?

You proceed to state:

You go to another bank that is willing to pay you 5% fixed for the next 3 years in exchange for your adjustable payment.

Is this a loan? If not, how is this swap structured? Can you walk into a bank and tell them "I'll trade you my income stream lasting 3 years based on 3 month LIBOR plus two percent for a flat 5 percent per month, and the loser pays the difference"?