In other words, the ceiling clause is a ceiling for the interest rate applicable to a mortgage loan.
At this point, we must remember that a reference index, which can be Euribor or Libor, is usually used to calculate the interest rate on mortgages. Even if this index exceeded the maximum established, the bank could not charge above said limit (the ceiling clause).
Ceiling clause example
To understand it better, let’s look at an example: If the established ceiling is 10% and the interest rises to 15%, the bank will charge the mortgage fee at 10%. In this way, the buyer or mortgager ensures that the share will never rise by a certain percentage regardless of the market.
Contrary to what happens with the floor clause, this type of financial clause used by banking entities has not generated so much controversy due to its non-transparent and therefore abusive declaration.
In Spain, for example, the floor clause has been considered abusive when it does not comply with transparency standards. That is, when it has not been clearly explained to the consumer and they have consented without the necessary information.
This means that the ceiling clause could be considered an abusive clause for consumers by the judges if it is not explained with sufficient clarity and transparency. And jurisprudence already has enough examples of this.
This ceiling clause affects mortgages contracted at a variable interest rate, since in those contracted at a fixed rate the interest throughout the life of the loan will remain constant.
Why is a ceiling clause fixed?
Lenders can stipulate this clause for several reasons:
- Although it may seem that this type of clause is stipulated in favor of the consumer, it should be noted that, if a mortgage loan establishes the ceiling clause, it is most likely that it forces the consumer to agree to the floor clause. This means that the bank through this clause establishes the floor clause that benefits it by safeguarding its own interests. Credit institutions thus protect themselves from possible falls in the variable part of the loan granted. The floor clause is intended to prevent debtors from paying very low interest on their mortgage loan. It can even prevent them from not paying interest on it.
- It has a marketing purpose towards the consumer. The consumer to know this type of clause could appreciate that the bank is being benevolent with the interests of his loan not allowing him to pay an exorbitant amount. But the reality is that the bank sets a ceiling so high that it can never be exceeded.
- Another reason the bank uses is to only establish this type of clause in the foreclosure and not for the entire life of the loan. In other words, this clause will only act when the mortgage guarantee must be fulfilled.