Interest Rate Swap

When the LIBOR increases, the bank will charge you higher interest on the $60,000 loan. This higher interest pay out can be offset by the higher interest income from the interest rate swap. Or, if the LIBOR decreases, the bank will charge you less for interest. But, you will also have lesser interest income from the interest rate swap. For this simple case, you may notice that the hedge is perfect as all the risks are totally offset. But in reality, it is seldom the case. You may still have a little bit gain or a little loss.

Always assess the risk before entering into new investments. Hedging reducing the risk at the same time reduces the potential return. Do according to your own risk preference.