Floating interest rate

The basis will be agreed between the borrower and lender, but 1, 3, 6 or 12 month money market rates are commonly used for commercial loans.

Floating rate loans are common in the banking industry and for large corporate customers.

In some countries, there may be no special name for this type of loan or mortgage, as floating rate lending may be the norm.

For example, in Canada substantially all mortgages are floating rate mortgages; borrowers may choose to "fix" the interest rate for any period between six months and ten years, although the actual term of the loan may be 25 years or more.

At the end of the first six months, the SOFR rate has risen to 4%; the client will pay 7.5% (or $937.5) for the second half of the year.