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 ?
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.
Commentary on the impact of interest-rate floors on Spanish banks is available at www.fitchratings.com (See Fitch: "Interest Rate Floor Ruling to Squeeze Spain Bank Margins").
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.
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.