Interest Rate Floor

(redirected from Interest Rate Floors)

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 ?
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, shorter loan maturities, and increase in use of interest rate floors," the BSP said.
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, the observed net tightening of overall credit standards is reflected in respondent banks stricter loan covenants and increased use of interest rate floors particularly for loans to large middle-market enterprises and small- and medium-sized enterprises (SMEs).
In terms of specific credit standards for commercial real estate loans, banks responses showed unchanged loan covenants but with wider loan margins, stricter collateral requirements, and increased use of interest rate floors, it added.
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.
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.
119 specifically mentions -- * interest rate swaps * interest rate caps * forward interest rate agreements * option contracts * interest rate collars * interest rate floors * futures contracts * fixed rate loan commitments * commitments to purchase stocks or bonds
1) As of September 30, 2012, approximately 55% of our debt portfolio at fair value had floating interest rates, 93% of which had interest rate floors, and approximately 45% of our debt portfolio had fixed interest rates.
Respondent banks reported stricter collateral requirements and loan covenants along with wider loan margins, reduced credit line sizes, shorter loan maturities, and increased use of interest rate floors for commercial real estate loans, the BSP said.