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. Capped Rate

    An interest rate that is allowed to fluctuate, but which cannot ...
  5. Variable Interest Rate

    An interest rate on a loan or security that fluctuates over time, ...
  6. Initial Rate Period

    The period of an introductory or "teaser" interest rate on a ...
Related Articles
  1. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  2. Personal Finance

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  3. Personal Finance

    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.
  4. Investing

    Financing Basics For First-Time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  5. Personal Finance

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  6. Personal Finance

    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.
  7. Insights

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  8. Investing

    Mortgages: Fixed Rate Versus Adjustable Rate

    Choosing the right mortgage can help homebuyers avoid costly mistakes. Learn the difference between fixed- and adjustable-rate loans.
  9. Personal Finance

    How Interest Rates Work On A Mortgage

    A step-by-step explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off.
RELATED FAQS
  1. 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 >>
  2. Federal student loan rates: who sets them, why they vary

    Federal student loan rates are set by Congress, not by banks. Learn more about who gets what rate, and how often they get ... Read Answer >>
  3. 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 >>
Trading Center