DEFINITION of 'Life Cap'
The maximum amount that the interest rate on an adjustable rate loan can increase over the term of the loan.
A life cap can be expressed as an absolute interest rate  such as a maximum lifetime rate of 12%, which is called an interest rate ceiling  or as a maximum percentage change in the interest rate from the initial interest rate on the loan. When the life cap is expressed as a maximum percentage change from the initial interest rate, it can also apply to interest rate decreases.
BREAKING DOWN 'Life Cap'
The life cap on a loan is used frequently as part of an interest rate cap structure. For example, a fixed period or hybrid ARM frequently has initial, periodic and life caps. On a 51 hybrid ARM, this might be expressed as a 525 cap structure, meaning there is a 5% initial cap, 2% periodic cap and 5% life cap. This means that at the first interest rate change date, the rate could change by a maximum of 5%, and at each subsequent change date the rate could change by a maximum of 2%. The maximum lifetime change in this example is 5%.

Lifetime Cap
The maximum interest rate on an adjustablerate mortgage (ARM) ... 
Interest Rate Ceiling
The maximum interest rate that a financial institution can charge ... 
Initial Interest Rate Cap
The maximum amount the interest rate on an adjustablerate loan ... 
Interest Rate Cap Structure
Limits to the interest rate on an adjustablerate loan  frequently ... 
Periodic Interest Rate Cap
A part of an interest rate cap structure on loans and mortgages. ... 
Capped Rate
An interest rate that is allowed to fluctuate, but which cannot ...

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