Interest Rate Floor

What Does Interest Rate Floor Mean?

An interest rate floor is a contractual feature associated with financial products and loans with floating interest rates. It protects the buyer by ensuring that the interest rate does not fall below a specified minimum level.

Insuranceopedia Explains Interest Rate Floor

The counterpart to the interest rate floor is the interest rate ceiling. The floor pays out when the interest rate falls below the specified rate in the contract, while the ceiling pays out when the rate exceeds the agreed-upon level. Both contracts are designed to protect the buyer from unpredictable market fluctuations.

These contracts are purchased at market exchange points.