Rate Cap

Definition

  • A predetermined limit that dictates how much the interest rate on a loan can change, either at each adjustment period or over the life of the loan.

Synonyms
adjustable rate mortgage interest rate cap, arm rate cap, interest rate cap

Related Terms and Acronyms

  • Amortization Schedule Definition,
    • A detailed table showing the amortization of a loan which includes the beginning principal amount, period payments, the interest portion of each payment, the principal reduction portion each payment, and the ending balance. The Canadian Equity Group has developed a mortgage rate calculator which will generate a perfect example of an amortization schedule.
  • Cap Definition,
    • 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.
    • A limit imposed on an item.
  • Interest Rate Cap Definition,
    • A limit to the interest rate increases and decreases on an adjustable rate loan; either from one adjustment period to the next or over the life of the loan.
  • 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.
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