Ceiling

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Ceiling

The highest price, interest rate, or other numerical factor allowable in a financial transaction.

Ceiling

The maximum interest rate that may be charged on a contract or agreement. For example, an adjustable-rate mortgage may have an interest rate ceiling stating that the rate will not go over 9% even if the formula used to calculate the interest rate would have it do so. An interest rate ceiling reduces the risk of the party paying the interest. It is also called an interest rate cap. See also: Interest Rate Floor.

Ceiling.

If there is an upper limit, or cap, on the interest rate you can be charged on an adjustable-rate loan, it's known as a ceiling.

Even if interest rates in general rise higher than the interest-rate ceiling on your loan, the rate you're paying can't be increased above the ceiling.

However, according to the terms of some loans, lenders can add some of the interest they weren't allowed to charge you because of the ceiling to the total amount you owe. This is known as negative amortization.

That means, despite a ceiling, you don't escape the consequences of rising rates, though repayment is postponed, often until the end of the loan's original term.

Ceiling can also refer to a cap on the amount of interest a bond issuer is willing to pay to float a bond. Or, it's the highest price a futures contract can reach on any single trading day before the market locks up, or stops trading, that contract.

ceiling

(1) The uppermost surface of a room or space. When a lease makes all improvements “below ceiling”the responsibility of the tenant,one must ask if “ceiling”means the concrete bottom of the floor above,or if it means the suspended grid system with ceiling tiles.The space in between the two is called the plenum.All the wiring,plumbing,and ductwork go through the plenum,so the choice of which surface is the “ceiling”could mean a substantial difference in tenant responsibilities.

(2) An upper limit on something,such as the IRS ceiling of $1,000,000 worth of home mortgage debt for which one can deduct mortgage interest.

References in periodicals archive ?
The first was the decision to eliminate Regulation Q interest rate ceilings on bank deposits.
Third, financial innovations that were designed to circumvent reserve requirements and Regulation Q interest rate ceilings should have weakened even the longer-run relationship between total reserves and bank liabilities, especially since the late 1970s.
34 See Gilbert (1986) for a more detailed discussion of the effects of Regulation Q interest rate ceilings and for a chronology of their eventual elimination.
This paper demonstrates that the effect of interest rate ceilings depends on the restrictions imposed by other financial regulations and visa versa, and that the effect of regulation, in turn, depends on the specifics of the loan transaction.
As interest rate ceilings become more restrictive, lenders are willing to assume only a lower degree of risk.
However, when low interest rate ceilings are in effect, lenders will be unable to raise interest rates (beyond the ceiling rates) to compensate for expected default losses.
In 1980 the Depository Institution Deregulation and Monetary Control Act was introduced and allowed for the gradual phase-out of deposit interest rate ceilings starting with the introduction of interest-bearing NOW accounts in 1981.
Estimates of equation (12) for the remaining years are also presented in Table 1 and can be compared with those for 1981 to see how the phase-out of interest rate ceilings affects the relationship.
In addition, some other concerns relating to possible politically motivated interference of the banking system, including but not limited to a distressed debt exchange by the government, retaliatory measures against institutions that supported the strike of early 2003, as well as directed lending and interest rate ceilings, have diminished as these actions have not materialized.
Interest rate ceilings and/or floors may also be implemented for FRN issuance, as outlined in the corresponding pricing supplement.