Interest Rate Floor

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Interest rate floor

An interest rate agreement in which payments are made when the reference rate falls below the strike rate. Related: Interest rate cap.

Interest Rate Floor

The minimum interest rate that may be charged on a contract or agreement. For example, an adjustable-rate mortgage may have an interest rate floor stating that the rate will not go below 3.5% even if the formula used to calculate the interest rate would have it do so. An interest rate floor reduces the risk to the bank or other party receiving the interest. See also: Interest Rate Ceiling.

Interest Rate Floor

The lowest interest rate possible under an ARM contract.

Floors are less common than ceilings. See Adjustable Rate Mortgage (ARM)/How the Interest Rate on an ARM Is Determined.

References in periodicals archive ?
"In terms of specific credit standards, Dl-based results pointed to wider loan margins, stricter collateral requirements and loan covenants as well as increased use of interest rate floors," said the BSP.
"The overall net tightening of standards for household loans reflected stricter collateral requirements and loan covenants, shorter loan maturities, and increased use of interest rate floors.
In terms of specific credit standards, diffusion index-based results suggested stricter collateral requirements and loan covenants as well as increased use of interest rate floors, the central bank said.
Of these commitments, 97% were in floating rate debt securities, of which 99% contained interest rate floors and 1% were in the subordinated certificates of the SDLP to make co-investments with Varagon and its clients in floating rate first lien senior secured loans through the SDLP, all of which contained interest rate floors.
Our debt portfolio consisted of 89% floating rate investments (subject to interest rate floors) and 11% fixed rate investments.
In a statement, the central bank said, 'The tighter overall credit standards for commercial real estate loans reflected respondent banks' wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, and increased use of interest rate floors.'
In terms of specific credit standards, results based on the DI approach indicated overall unchanged collateral requirements, loan covenants and use of interest rate floors. Over the next quarter, results based on the modal approach indicated that the majority of the respondent banks anticipated maintaining their overall credit standards.
The majority of the portfolio was comprised of senior secured loans and more than 96 percent of these loans were variable-rate investments (indexed to LIBOR) with interest rate floors, which should continue to position the portfolio well for a potential rising interest rate environment.
The associations took issue with the Fed's decision to eliminate interest rate floors. NAFCU President/CEO Fred Becker wrote the Fed that interest rate floors are a vital tool to help credit unions manage interest rate risk and are a "vitally important planning tool for credit card issuers."
LENDERS who impose interest rate floors on tracker mortgages may be breaching regulatory rules if customers were not warned about the issue when they took out the loan, the City watchdog, the Financial Services Authority, told lenders yesterday.
Interest rate floors are typically used by issuers or obligors in connection with variable-rate debt, to economically provide a minimum rate payable on variable-rate debt without actually subjecting the terms of the debt to a minimum rate in exchange for receiving a premium.
Life companies have limited new lending for all property types to stabilized permanent mortgages, and have instituted interest rate floors at the 6.75 percent to 7 percent level.