DEFINITION of 'Callable Swap'
An exchange of cash flows in which one counterparty makes payments based on a fixed interest rate, the other counterparty makes payments based on a floating interest rate and the counterparty paying the fixed interest rate has the right to end the swap before it matures.
An investor might choose a callable swap if interest rates are expected to change in a way that would adversely affect the fixed rate payer.
BREAKING DOWN 'Callable Swap'
The additional features of a callable swap make it more expensive than a plain vanilla interest rate swap  the fixed rate payer will pay a higher interest rate and possibly might have to pay additional funds to purchase the option. The opposite of a callable swap is a putable swap, which allows the floating interest rate payer to end the swap early.

Putable Swap
An exchange of cash flows in which one counterparty makes payments ... 
Extendable Swap
An exchange of cash flows between two counterparties, one of ... 
Delayed Rate Setting Swap
An exchange of cash flows, one of which is based on a fixed interest ... 
Reversible Swap
An exchange of cash flows that allows one counterparty to use ... 
Asset Swap
Similar in structure to a plain vanilla swap, the key difference ... 
Swap Rate
The rate of the fixed portion of a swap as determined by its ...

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What are the risks involved with swaps?
Learn about interest rate risk and counterparty risk for interest rate swap agreements, and understand how the DoddFrank ... Read Answer >> 
Who is the counterparty of a derivative?
Learn about the counterparty to a derivative contract, and how derivative swap agreements traded over the counter have counterparty ... Read Answer >> 
How do currency swaps work?
Learn about how a currency swap works, including who uses these transactions, and the mechanics and purpose of the different ... Read Answer >> 
What is an absolute rate?
An absolute rate is easy to understand once you know the basics of an interest rate swap. An absolute rate is the fixed rate ... Read Answer >> 
How are swap agreements financed?
Learn how swap agreements are now cleared by swap execution facilities and require the use of collateral margin to hold, ... Read Answer >> 
What would motivate an entity to enter into a swap agreement?
Learn why parties enter into swap agreements to hedge their risks, and understand how the different legs of a swap agreement ... Read Answer >>