


Loan and Mortgage Terms Glossary 



Cap:
A limit in 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 lifeofloan cap or an annual cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount of the interest rate. A lifeofloan cap restricts the amount the interest rate can increase over the entire term of the loan. An annual cap limits the amount the interest rate can increase over a twelvemonth period. Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as "caps." Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.





 