What is an adjustable rate mortgage cap?

An adjustable rate mortgage cap is a limit on the amount that the interest rate of an adjustable rate mortgage can be raised or lowered. This limit is put in place to protect the borrower from drastic changes in the interest rate of the mortgage loan. In Kentucky, adjustable rate mortgages usually come with periodic rate caps and lifetime rate caps. The periodic rate cap is the maximum amount that the interest rate can change in each adjustment period. The lifetime rate cap is the maximum amount that the interest rate can change over the life of the loan. Adjustable rate mortgage caps provide the borrower with some assurance that their interest rates will not drastically increase during the life of the loan. Knowing the rate caps on an adjustable rate mortgage can also help the borrower determine the maximum amount of money that they may need to pay over the life of the loan.

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What is an adjustable rate mortgage cap?

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