You may come across the word collar with regard to interest rates and often with regard to a mortgage product you may be told there is a certain collar.

This is a guarantee that the rate will not fall below a fixed amount, so this will protect the entity that is lending the money, typically a bank.

Often in conjunction there is a cap, which will protect the borrower as it will say that the interest rate will not move beyond the cap. Therefore you can think of the collar is a limiting boundary at the lower end (often with a cap at the top end) to protect both parties in a loan agreement from wild oscillations in interest rates.

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