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 ?
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.
Capital is available and interest rates are low with many lenders instituting interest-rate floors.