Term - F : Fixed Rate / Floating Rate

Fixed Rate / Floating Rate

Fixed Rate/ Floating Rate

Floating or variable interest rate is linked to a benchmark such as LIBOR or the bank's Prime Lending Rate and is expressed with a spread above or below the benchmark rate. It thus varies with market conditions. Repricing takes place after a predetermined period, say 6 months. If the rate of interest is fixed for the duration of the loan it is said to be a fixed rate. In practice, the rate is fixed only for 2 or 3 years and at the end of that time, it is fixed for a further period depending on the then market conditions