Mortgage Cap

A mortgage cap is a contractual limit on interest rate increases for variable rate mortgages, protecting borrowers from excessive rate spikes while allowing benefit from rate decreases.

Cap TypesProtection Level
Periodic capMaximum change per adjustment
Lifetime capMaximum rate over loan term
Payment capMaximum payment increase
Combined capMultiple limits together
Cap Structure ExampleTerms
Initial rate5%
Periodic cap2% per adjustment
Lifetime cap9% maximum
Adjustment frequencyAnnually
Scenario AnalysisImpact
Market rate jumps to 8%Charged 7% (5% + 2% cap)
Market rate jumps to 12%Charged 9% (lifetime cap)
Market rate falls to 3%Charged 3% (full benefit)


Related Terms

Loan-to-Value (LTV)Interest RateCapped Rate MortgageVariable Rate MortgageInterest Rate RiskMortgage Term

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