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.