What is a Floor rate?

The floor rate is the lowest possible interest rate that a bank will charge you after your mortgage's fixed-rate period ends. This minimum rate will be clearly specified in your mortgage offer letter from the bank.

After the fixed period, the bank will calculate your variable rate by adding their margin rate to the EIBOR (Emirates Interbank Offered Rate). If the sum of these two components is higher than the predetermined floor rate, the bank will apply this variable rate to your mortgage.

However, if the combined margin rate and EIBOR is lower than the floor rate, the bank will still charge you the minimum floor rate. This ensures that the bank's earnings are protected, even if market conditions result in a lower EIBOR.

It's important to note that the bank will always charge you the higher of the two rates: either the combined margin rate and EIBOR or the pre-set floor rate. Understanding this concept is crucial when planning your mortgage payments after the fixed-rate period has ended.