In finance, the term rollover refers to the practice of extending a financial contract past its expiry or maturity date, or renewing the contract when it has expired. This is typically accomplished automatically via a rollover clause included in the terms and conditions of the contract. However, a contract’s terms and conditions may require an action or the approval of contract parties before the contract can be extended or renewed.
Examples of contracts which are rolled over by default include revolving credit instruments like credit cards and Lombard loans, and investment vehicles rolling daily contacts for difference.
Typically, a rollover is equivalent to the automatic creation of a new contract with the same or similar terms. In the case of instruments which make use of financing, such as revolving credit instruments and leveraged investment products, the interest rates applicable to financing may be changed during a contract rollover.
In Switzerland, the term rollover is most widely used in relation to LIBOR-based mortgages (see: Rollover mortgage). These mortgage contracts are typically made up of multiple contracts (tranches) with terms of 3, 6 or 12 months. At the end of each term, the contract is automatically rolled over to a new contract based on the going LIBOR at the time.
In the United States, the term rollover is also used to denote the practice of transferring retirement assets between retirement saving vehicles without withdrawing the assets from tax-privileged retirement savings categories.
More on this topic:
Online trading comparison
