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Financial Dictionary - Floor clauses

Floor clauses

A mortgage floor is a clause regulating the minimum interest rate for a variable-rate mortgage. These clauses are triggered when the benchmark index (Euribor) plus the spread is below a particular value.

Variable-rate mortgages often used to have with a floor clause, which was, in general, always 3%. However, when the Euribor began to fall as a result of the economic crisis, many people with mortgages were affected by these minimum interest rates as they had to pay more than they would have had to if that limit did not exist.

Due to a lack of transparency by some financial institutions, in May 2013, Spain's Supreme Court declared such clauses to be totally void, due to the high minimum interest rates in the mortgage deeds. A few months later, the Court of Justice of the European Union ruled that everyone affected could recoup what they had overpaid since these clauses began to be applied to variable-rate mortgages.


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