Initial Adjustment Cap

Initial Adjustment Cap

An initial adjustment cap is typically associated with adjustable rate mortgages (ARMs). This cap determines how much the interest rate can increase the first time it adjusts after the fixedrate period expires. It’s common for this cap to be either two or five percent – meaning that at the first rate change, the new rate can’t be more than two (or five) percentage points higher than the initial rate during the fixed-rate period. Understand how the index factors into adjustable-rate mortgage loans (cfpb.gov/askcfpb/194