Floating Interest Rate


DEFINITION of 'Floating Interest Rate'

An interest rate that is allowed to move up and down with the rest of the market or along with an index. This contrasts with a fixed interest rate, in which the interest rate of a debt obligation stays constant for the duration of the agreement.

A floating interest rate can also be referred to as a variable interest rate because it can vary over the duration of the debt obligation.

BREAKING DOWN 'Floating Interest Rate'

For example, residential mortgages can be obtained with a fixed interest rate, which is static and can't change for the duration of the mortgage agreement, or with a floating interest rate, which changes periodically with the market. In the case of floating interest rates in mortgages, and most other floating rate agreements, the prime lending rate is used as a basis for the floating rate, with the agreement stating that the interest rate charged to the borrower is the prime interest rate plus a certain spread.

  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Long Inverse Floating Exempt Receipt ...

    A floating rate debt security traded among qualified institutional ...
  4. Nixon Shock

    A term used to describe the actions taken by former U.S. President ...
  5. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  2. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  3. Investing Basics

    How Interest Rates Affect The Stock Market

    Whether you're buying lunch, a home or a stock, you're influenced by interest rates.
  4. Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

    Find out what happens when short-term interest rates exceed long-term rates.
  5. Investing Basics

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
  6. Investing

    In Search of the Rate-Proof Portfolio

    After October’s better-than-expected employment report, a December Federal Reserve (Fed) liftoff is looking more likely than it was earlier this fall.
  7. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  8. Investing Basics

    Why Interest Rates Affect Everyone

    Learn why interest rates are one of the most important economic variables and how every individual and business is affected by rate changes.
  9. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  10. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  1. What are the typical repayment terms for a syndicated loan?

    The typical repayment terms for a syndicated loan are periods of three to six years for short-term loans or seven to 10 years ... Read Full Answer >>
  2. Do lenders offer floating APRs?

    There are floating APRs. APR stands for annual percentage rate, and it must be provided when advertising for credit, as it's ... Read Full Answer >>
  3. What loans do and don't have an APR?

    APR means annual percentage rate and if a loan charges interest, it has one. Due to provisions in the 1968 Truth in Lending ... Read Full Answer >>
  4. How do companies benefit from interest rate and currency swaps?

    An interest rate swap involves the exchange of cash flows between two parties based on interest payments for a particular ... Read Full Answer >>
  5. Are secured personal loans better than unsecured loans?

    Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
  6. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center