A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

The interest rate cap on your adjustable rate mortgage will be determined by the type of arm loan you choose. Your Mortgage Professional can go over the different types of arms and caps that are offered and help you obtain the program that best suit your needs.

There are different rate caps for adjustable rate mortgages. The first cap is the maximum adjustment that can be made after your fixed rate period is over. The second rate cap is the maximum adjustment the bank can make each adjustment period. The last cap is the maximum life cap which is the maximum adjustment the bank can make to your rate as compared to your start rate.

Rap caps of 3/1/7 means the bank cannot increase your rate more than 3% on your first adjustment, cannot increase your rate more than 1% on each adjustment period after that, and cannot increase your rate more than 7% over the life of the loan.

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