Interest Rate Floor Means

An interest rate floor is a contract associated with financial products and loans that feature floating rates.

Interest rate floor means.

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. Interest rate floors are utilized in derivative. Similarly an interest rate floor is a derivative contract in which the buyer receives payments at the end. An interest rate floor is similar to an interest rate cap agreement.

An interest rate floor is an agreement between the seller or provider of the floor and an investor which guarantees that the investor s floating rate of return will not fall below a specified level over an agreed period of time. An interest rate cap is a type of interest rate derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price an example of a cap would be an agreement to receive a payment for each month the libor rate exceeds 2 5. For an adjustable rate mortgage the minimum interest rate that could be charged. An interest rate floor reduces the risk to the bank or other party receiving the interest.

The minimum interest rate that may be charged on a contract or agreement.