Interest Rate Ceiling

DEFINITION of 'Interest Rate Ceiling'

The maximum interest rate that a financial institution can charge a borrower for an adjustable rate mortgage or loan according to the contractual terms of the mortgage or loan. This interest rate is expressed as an absolute percentage.

BREAKING DOWN 'Interest Rate Ceiling'

For example, the terms of the loan might state that the interest rate can never exceed 19%.
An interest rate ceiling is sometimes used interchangeably with the term "lifetime interest rate cap". However, an interest rate cap is usually expressed as a maximum change allowed in an initial interest rate.

For example, a 5% interest rate cap would suggest that the interest rate on the borrower's loan can fluctuate within a 5% range during any specific rate adjustment period.

RELATED TERMS
  1. Life Cap

    The maximum amount that the interest rate on an adjustable rate ...
  2. Initial Interest Rate Cap

    The maximum amount the interest rate on an adjustable-rate loan ...
  3. Periodic Interest Rate Cap

    A part of an interest rate cap structure on loans and mortgages. ...
  4. Lifetime Cap

    The maximum interest rate on an adjustable-rate mortgage (ARM) ...
  5. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  6. Variable Rate Mortgage

    A type of home loan in which the interest rate is not fixed. ...
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