Cap

Definition

• The upper most 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.
• An upper limit imposed on an item, such as an interest rate, return on investment, annuity or spending.

Synonyms
limit, interest rate

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.
• Annual Crediting Cap — Definition,
  • The highest rate that can be credited to an equity-indexed annuity in a year.
• Interest (IN, int) — Acronym & Abbreviation,
  • Money paid for the use of borrowed funds, usually expressed as an annual percentage.
  ➥ Bank account transaction code.
• 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.
• Loan — Definition,
  • Letting another party use something of value temporarily.
• Payment Adjustment Period — Definition,
  • The time period where payments on an adjustable-rate mortgage (ARM) may fluctuate.
• 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.