Dictionary of Banking Terms: floating interest rate
floating interest rate
loan interest rate that changes whenever an index rate, or base rate, such as the bank prime rate, the London Interbank Offered Rate (LIBOR), or Federal Home Loan Bank index rate changes. There are numerous examples: (1) consumer loan rate, for example, the rate charged on adjustable rate mortgages or variable rate auto loans, that is indexed to another rate, such as the commercial bank prime rate, a Cost Of Funds Index, or a lender's internal cost of funds; (2) key lending rate, such as the prime rate that moves upward or downward, depending on market demand for funds, available reserves in the banking system, and other factors. Contrast with fixed rate loan.
