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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
References in periodicals archive ?
They created another mechanism, called the overnight reverse repurchase agreement facility, to act as an interest-rate floor. 6.
A Madrid court ruled this month that interest-rate floor clauses in retail mortgages lacked transparency and were abusive.
Where interest-rate floor clauses are nullified, it is possible that this will apply retrospectively to May 2013.
The biggest potential impact on RMBS transactions could arise if final court decisions confirm that interest-rate floor clauses were abusive because of insufficient transparency at origination, and borrowers have to be compensated as if the clauses had not been present since May 2013.
Madrid/London: The potential for mortgage interest-rate floors to become ineffective is a remote risk for Spanish RMBS and mortgage covered bonds, Fitch Ratings says.
An interest-rate floor takes the opposite position of a cap, benefiting the purchaser if rates fall below a specified level.
Burkhalter said near-historically-low interest rates on fixed-rate financing for multifamily rentals have some lenders holding interest-rate floors on lower-leverage transactions and in middle-tier loan terms, including five-, seven-and 10-year terms.
In most cases, acquisition and construction loan-to-value ratios have decreased, requiring additional equity, while many permanent lenders have adopted interest-rate floors.
The introduction of measures, such as interest-rate floors, means borrowers should have more buffers to withstand increases in interest rates and unemployment, and a slowdown in the housing market.
Capital is available and interest rates are low with many lenders instituting interest-rate floors. Conduits, life insurance companies and banks are all looking for good opportunities to place money, and in many cases are finding them, In general though, they are in tune with the market shifts and are cautious, as usual, about what value to use in determining loan proceeds.