 |
Definition of 'Cap'
The highest point to which an adjustable rate mortgage (ARM) can rise in a given time period or the highest rate that investors can receive on a floating-rate type bond. The issuer typically sets the cap at the time the contract is issued. With an ARM, it is detailed in the terms of the mortgage document.
|
 |
Investopedia explains 'Cap'
Homeowners that have adjustable rate mortgages (ARMs), which vary based on an underlying benchmark such as the prime rate, experience a fluctuation in their monthly mortgage interest rates. However, the amount by which the percentage rate on the loan can increase in a given period (typically quarterly) is capped at a certain rate. This is a safeguard for homeowners in case interest rates rise dramatically in a short period of time.
|
-
Get a deeper understanding of the importance of interest rates and what makes them change.
Read More »
-
In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
Read More »
-
There are both good and bad reasons to refinance. Learn more about both here.
Read More »
|
|