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TeachMeFinance.com - explain floor floor -- (1) the minimum allowable interest rate decrease for adjustable rate mortgages. Floors embedded in mortgage agreements may limit the amount of downward change in the rate of interest at each adjustment period and provide a fixed minimum below which the rate cannot drop during the life of the loan. (2) an agreement negotiated between a buyer and seller. The buyer of a floor agreement pays a fee to the seller. In return, the seller will pay the buyer if a designated floating index rate is lower than a specified fixed rate on designated days. The seller pays nothing if the floating rate is above the fixed rate. Buyers of floor agreements use them to hedge against falling interest rates , because payments to the buyer increase as rates rise. See cap. See collar. historic definition... Floor -- A name given to the board room (trading room) of an exchange ; on the floor means in the board room. About the author Mark McCracken Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English". Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.