 Sam
Site Admin
Joined: 21 May 2005
Posts: 281
Location: CALIFORNIA
117.49 Dollars($)
|
 Posted: Tue Apr 13, 2004 5:05 pm Post subject: Interest Rate Floor |
|
|
Interest Rate Floor refers to the minimum interest rate that the lender charges on an adjustable rate mortgage. It is specified in the mortgage contract.
Interest Rate Floor is an interest rate agreement in which payments are made when the reference rate falls below the strike rate. The reference rate is a publicly quoted value used by the parties in a financial contract. The reference rate can be a LIBOR Index, Consumer Price Index, house prices, unemployment rate.
The interest rate floor represents a series of European put options (financial contracts) on a specified reference rate, usually the LIBOR. The buyer of the cap receives cash if on the maturity of any of the options, the reference rate exceeds the agreed strike price of the floor. |
|
