Floor loan

The floor loan is the reverse of the cap loan . This loan has variable interest rates. However, there is a lower limit, the floor.

A floor loan is negotiated between the borrower and the lender. If the floor falls below a negotiated market interest rate ( e.g. the EURIBOR ) on a certain key date (a so-called floor strike), the borrower pays the lender a compensation payment. As with the cap loan, a floor loan is a combination of an interest rate derivative and a fixed rate loan.

With a floor loan, the lender is granted increased interest rate security, which the lender in turn rewards in the form of a floor premium . The higher the floor is set up, the longer the agreed term is and the lower the interest rate increase forecast by the market, the higher the premium.

A floor loan is usually combined with a cap loan; the floor premium received can compensate for part of the cap premium. With this you have then set up an upper and lower limit for interest rates, an interest rate corridor, called a collar .