The Floor, in real estate mortgage terms, refers to the minimum interest rate that a bank can impose upon a loan or floating-rate bond that charges a fluctuating interest percentage according to what is called a floating or variable rate. The provision guarantees the lender that a particular rate (at least as high as the Floor) will be the minimum yield that can be expected. Furthermore, the Floor protects the lender from loss due to rates unexpectedly plummeting below the market index. Similarly, the Floor for a bond refers to the lowest possible value after depreciation. This protects the purchaser of a convertible bond from buying a bond that becomes completely worthless, based upon current market values, remaining future cash-flow, and principal repayment. Other various terminology operates in conjunction with the Floor to create a more complete picture of the interest payment architecture. A rate Floor is often accompanied by a rate ceiling (or cap) and together they are formally known in the real estate industry as the interest rate collar. The cap assures the borrower that rates will not exceed a certain percentage either. Also, underwriting standards are used to determine the creditworthiness of the borrower, in order to ascertain the size of the loan amount that they are qualified for. The lowest requirements that a borrow is able to obtain is in fact the underwriting Floor and the loan may be granted as long as the original loan principal is budgeted.

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