Cap’s

on an Adjustable Rate Mortgage (ARM), caps are the percentage points that the interest rate is eligible to increase by or to, based on the cap. For example, most ARMs have 3 cap’s:

  • The Initial Cap - the max amount the interest rate is eligible to increase the first time the rate is allowed to change
  • The Annual Cap - the max amount the interest rate is eligible to increase every year after the initial adjustment
  • The Lifetime Cap - the max amount the interest rate is eligible to increase over the lifetime of the loan

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