Definition
A limit on how much an ARM's interest rate can increase at each adjustment and over the loan's life.
Example
The 2/1/5 cap structure limited the first adjustment to two points and lifetime increases to five.
Related terms
- Acceleration Clause
- Accrued Interest
- Adjustable-Rate Mortgage
- Amortization
- Annual Percentage Rate
- Assumable Mortgage
Frequently asked questions
What does Adjustable Rate Cap mean in real estate?
A limit on how much an ARM's interest rate can increase at each adjustment and over the loan's life.
How is Adjustable Rate Cap used in practice?
The 2/1/5 cap structure limited the first adjustment to two points and lifetime increases to five.
This definition is provided for educational purposes. Legal and tax terminology can carry jurisdiction-specific meaning — confirm with a licensed professional before relying on it in a transaction.