Floating Interest Rate

See: Interest Rate.

The most common floating interest rate comes in the flavor of an ARM, and no, not a cannibal's hors d'oeuvre.

An ARM is an Adjustable Rate Mortgage whose interest rate floats with other indices, like LIBOR or some Fed Rate of Funds index. See: COFI. See: LIBOR. See: ARM.

The floating rate on the mortgage might be something like, "LIBOR plus 150 basis points," so that if LIBOR is 3%, then you'd be paying 4.5% as your interest rate on your mortgage. And all is well and dandy until LIBOR runs to 7%, at which point you're paying 8.5% on your mortgage and life gets...rough.