Rate cap
A limit on how much an ARM's rate can rise — an initial cap at the first reset, a periodic cap per adjustment, and a lifetime cap over the loan.
What does rate cap mean?
Caps are the guardrails on an adjustable-rate mortgage, often written like 2/2/5: an initial cap on the first adjustment, a periodic cap on each later one, and a lifetime cap on how far the rate can ever climb above the start. Caps define your worst-case payment, so they matter as much as the teaser rate when weighing an ARM.
Frequently asked
What do ARM caps like 2/2/5 mean?
The first number caps the initial adjustment, the second caps each later adjustment, and the third is the lifetime cap over the starting rate.
So 2/2/5 means the rate can rise at most 2% at first reset, 2% per adjustment after, and 5% total over the loan.
Put it to use
Related terms
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