Darien

it would be wrong to calculate the pay off on expiration of the call because even though the interest fixed at the expiration date, the interest is PAID in arrear long in the future (i.e., when the loan in finally paid off), thus you need to discount that gain/loss back.

Interest rate option is the option to get a fixed rate while FRA is an obligation to get a fixed rate thus the payoff of the option is quite similar to pay off FRA calculation at expiration.