What is a floor clause?
A floor clause is a rule in a loan contract to buy a home. This rule says that even if interest rates drop, the borrower always has to pay a minimum amount of interest. This protects banks, but can harm borrowers. This is because even if the interest rate is lower, the consumer cannot benefit from this reduction in their fees.
In Spain, some floor clauses were declared unfair by the Supreme Court in 2013. This means that borrowers can sue and ask to have these rules removed from their contracts. They can also get money back if they paid extra interest because of these clauses.
Borrowers can present their claim to the banks and, if they do not reach an agreement, they can go to court. There are different ways to claim and obtain compensation.
- Minimum limit on the interest rate that will be applied to the loan, even if the reference interest rates fall below that limit.
In which contracts is it usually applied?
The floor clause is commonly used in variable rate mortgage loan contracts. These mortgage loans are usually intended for the acquisition of homes or real estate.
In general, the floor clauses may vary depending on the conditions of each mortgage loan contract and the financial institution that applies it.
Some examples that can be applied can be:
- 3%: This means that even if the reference interest rates, such as the Euribor, drop below 3%, the interest rate applicable to the loan cannot be less than that percentage.
- 2.5%: Similar to the previous case, but with a limit of 2.5%.
- 1.5%: In this case, the interest rate of the loan may not drop below 1.5%, even if the reference interest rate falls below that value.