Interest Rate Cap

Interest Rate Cap

An interest rate cap, sometimes referred to as an annual cap, is the maximum interest rate increase that can occur annually for an adjustable rate mortgage (ARM) even if the rate would have increased more under market interest rates. For example, if this cap is two percent, the new rate can’t be more than two percentage points higher than the previous rate. Understand how lenders use the index and margin to adjust your interest rate (cfpb.gov/askcfp b/1949).