Loans
Cap (ARM)
A limit on how much the interest rate on an adjustable-rate mortgage can change during a specific period or over the life of the loan. Caps are typically expressed as three numbers, such as 2/2/5, meaning the rate can increase up to 2% at the first adjustment, up to 2% at each subsequent adjustment, and up to 5% total over the life of the loan. Caps protect borrowers from extreme rate increases.
Why It Matters
Understanding Cap (ARM) is a key part of choosing the right mortgage. The type of loan you select affects your monthly payment, how much interest you pay over the life of the loan, and how much flexibility you have if your financial situation changes.
When comparing loan options, pay attention to how cap (arm) fits into the bigger picture of your borrowing costs. A knowledgeable loan officer or mortgage broker can help you evaluate whether this option aligns with your financial goals and timeline.