DEFINITION of 'Initial Interest Rate Cap'
The maximum amount the interest rate on an adjustablerate loan can adjust on its first scheduled adjustment date. This is part of the interest rate cap structure on the loan, usually a mortgage, which helps to give borrowers some protection from payment shock but does limit the benefit from interest rate reductions.
BREAKING DOWN 'Initial Interest Rate Cap'
For example, an adjustable rate mortgage with a starting interest of 6% and an initial interest rate cap of 2% could adjust upward no higher than 8%, or no lower than 4% at its first adjustment date. The rate change will be limited by the cap even if the interest rate enviroment changes dramatically in either direction. Loans which have initial interest rate caps also frequently have periodic and lifetime interest rate caps, which limit the amount the interest rate can adjust throughout the life of the loan.

Periodic Interest Rate Cap
A part of an interest rate cap structure on loans and mortgages. ... 
Interest Rate Cap Structure
Limits to the interest rate on an adjustablerate loan  frequently ... 
Interest Rate Ceiling
The maximum interest rate that a financial institution can charge ... 
Life Cap
The maximum amount that the interest rate on an adjustable rate ... 
Annual Cap
A clause found in the contract of an adjustablerate mortgage ... 
Lifetime Cap
The maximum interest rate on an adjustablerate mortgage (ARM) ...

Managing Wealth
Adjustable Rate Mortgage: What Happens When Interest Rates Go Up
Adjustable rate mortgages can save borrowers money, but they can't go into it blind. In order to benefit from an ARM, you have to understand how it works. 
Personal Finance
Mortgages: FixedRate Versus AdjustableRate
Both of these have advantages and disadvantages depending on your financial needs and prospects. 
Personal Finance
Mortgages: Fixed Rate Versus Adjustable Rate
Choosing the right mortgage can help homebuyers avoid costly mistakes. Learn the difference between fixed and adjustablerate loans. 
Markets
How Interest Rates Work On A Mortgage
A stepbystep explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off. 
Personal Finance
Mortgage Basics: VariableRate Mortgages
By Lisa SmithA variablerate mortgage, also commonly referred to as an adjustablerate mortgage or a floatingrate mortgage, is a loan in which the rate of interest is subject to change. When ... 
Managing Wealth
The Best Candidate For an Adjustable Rate Mortgage
Adjustablerate mortgages aren't for everyone, but they make sense if you are a shortterm homeowner or can pay off the loan before it readjusts. 
Markets
Simple Interest Loans: Do They Exist?
Yes, they do. Here is what they are – and how to use them to your advantage. 
Markets
How Banks Set Interest Rates on Your Loans
Many factors go into how banks set interest rates for loans. Use this information to negotiate the best possible rate when you're borrowing. 
Trading
Managing Interest Rate Risk
Learn which tools you need to manage the risk that comes with changing rates. 
Trading
Managing Interest Rate Risk
Interest rate risk stems from the possibility that an interestbearing asset’s value will change due to changing interest rates.

Which is better, a fixed or variable rate loan?
A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >> 
What is the difference between a fixed annual percentage rate (APR) and a variable ...
Fixed ARP and variable APR loans operate differently but serve the same purpose: to collect interest from a borrower so the ... Read Answer >> 
What is the difference between real and nominal interest rates?
Learn what nominal interest rates and real interest rates are, how real interest rate takes into account the inflation rate, ... Read Answer >> 
What are the different types of subprime mortgages?
Clarify your understanding of subprime mortgages. Learn about the different types, how they work and when they might be beneficial. Read Answer >> 
How can an investor reduce interest rate risk?
Learn about the different ways investors can reduce interest rate risk. Locking in interest rates increases certainty for ... Read Answer >> 
What are the pros and cons of a simpleinterest mortgage?
Learn the difference between a simple interest mortgage and a standard mortgage, along with their relative advantages and ... Read Answer >>