What is an adjustable rate mortgage cap?

An adjustable rate mortgage cap (ARM Cap) is a limit set on the amount an interest rate on an adjustable rate mortgage (ARM) can change in Virginia. The cap is usually expressed as a percentage, and is determined by the mortgage lender prior to the loan being issued. For example, if the ARM cap is 2%, then the interest rate on the loan cannot increase by more than 2%, no matter how much the market rate increases. It is important to note, however, that the ARM cap only applies to increases in the interest rate. The mortgage lender is able to decrease the interest rate regardless of the ARM cap. The ARM cap is typically put in place to protect borrowers from extreme rate hikes. It ensures that their monthly mortgage payments remain reasonable even if the market rate increases significantly.

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What is an adjustable rate mortgage cap?

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