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What is a cap?

A limit on the amount your interest rate can increase on an adjustable-rate mortgage.

An interest-rate cap limits the amount your interest rate can increase on an adjustable-rate mortgage (ARM). There are two types of caps: a periodic adjustment cap and a lifetime cap. A periodic adjustment cap limits the rate’s increase from one adjustment period to the next. A lifetime cap limits the rate increase over the life of the loan. All ARMs must have a lifetime cap.