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A limit on how much an adjustable rate mortgage's monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or periodic cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount the interest rate can increase. A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan. A periodic cap limits the amount the interest rate can change at the time of each periodic adjustment.
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