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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 life-of-loan 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 life-of-loan 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 twelve-month period.
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