A limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down over the life of a loan
The average lifetime rate cap is 5 to 6 percentage points over an ARM’s initial interest rate. So, for example, if your initial interest rate is 6% and the lifetime rate cap is +5%, your rate can’t go beyond 11% over the loan’s term. The maximum lifetime rate cap is often called the ceiling thus, the minimum lifetime rate cap is called the floor.
See: Cap, Adjustable rate mortgage
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