Interest Rate Cap

Definition

• A limit that is imposed upon interest rate increases and decreases for an adjustable rate loan. The cap or limit can be imposed from one adjustment period to the next or over the entire life of the loan.

Synonyms
payment cap, periodic rate cap, cap

Related Terms and Acronyms

• Adjustable-Rate Mortgage (ARM) — Acronym,
  • A type of mortgage loan program in which the interest rate and payments may be adjusted as frequently as every month. The principal loan balance or term of the loan may also be adjusted to reflect the rate change. The purpose of the program is to allow mortgage interest rates to fluctuate with market conditions.
  ➥ A type of variable rate mortgage product.
• Adjustment Period — Definition,
  • The time between changes in the interest rate in an adjustable-rate mortgage.
• Annual Crediting Cap — Definition,
  • The highest rate that can be credited to an equity-indexed annuity in a year.
• Cap — Definition,
  • A limit imposed on an item.
  • The top limit on the amount the interest rate can increase during a single time period of an adjustable-rate mortgage. Every ARM has two caps: a periodic cap, which limits the periodic changes to the interest allowed in the loan agreement, and a lifetime cap, which governs the total increase that can be imposed during the life of the loan.
• Change Frequency — Definition,
  • The scheduled period in which an adjustable-rate mortgage adjusts.
• Fixed Rate Mortgage (FRM) — Acronym, Very Important,
  • A loan in which the interest rate and payments remain the same for the entire life of the loan. The interest rate and payment amounts are set at the time of loan origination.
• Interest Rate (IR) — Acronym, Very Important,
  • The rate a lender charges an individual to borrow money.
• Mortgage (mtg) — Abbreviation, Important,
  • A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
• Mortgage Rate — Definition, Very Important,
  • The interest rate on a mortgage loan.
  ➥ You can compare mortgage rates using this website by clicking 'Rates' above.
• Payment Cap — Definition,
  • A contractual limit on the size of the monthly payment of an adjustable-rate mortgage or other variable rate loan.
• Periodic Rate Cap — Definition,
  • In an adjustable-rate mortgage (ARM), it limits how much an interest rate can increase or decrease from one adjustment period to the next.
• Rate Cap — Definition,
  • A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
• Rate Index — Definition,
  • A table of yields or interest rates being paid on debt (such as Treasury notes or bank deposits) that is used to determine interest-rate changes for adjustable-rate mortgages and other variable-rate loans.
• Variable Rate Mortgage (VRM) — Acronym, Very Important,
  • Home loan in which the interest rate is changed periodically based on a standard financial index. Also called an "Adjustable-rate Mortgage."
  ➥ A type of mortgage loan offered by brokers and lenders.