Annual cap is a limitation on the amount by which the interest rate on an adjustable-rate mortgage (ARM) can increase or decrease over a one-year period, protecting borrowers from significant fluctuations in their monthly mortgage payments.
CAP in adjustable rate mortgages (ARMs) refers to a limit placed on adjustments to protect the borrower from large increases in the interest rate or the payment level. There are different types of caps, including annual caps, lifetime caps (life-of-loan caps), and payment caps. This measure helps borrowers by providing predictability and stability in their mortgage payments.
A rate cap refers to predetermined limits placed on adjustments to the interest rate on an adjustable-rate mortgage (ARM), safeguarding borrowers from excessive rate fluctuations over the life of the loan.
