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 Life of Loan Cap is a contractual limitation on the maximum interest rate that can be applied to an adjustable-rate mortgage during the term of the loan.
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.
