interest rate cap
Definition 1
A provision of an adjustable rate mortgage limiting how much interest rates may increase in a single adjustment period.
Definition 2
An options contract which puts an upper limit on a floating exchange rate. The writer of the cap has to pay the holder of the cap the difference between the floating rate and the reference rate when that reference rate is breached. There is a premium to be paid by the buyer of such a contract in order to gain the certainty of a maximum payout.
A provision of an adjustable rate mortgage limiting how much interest rates may increase in a single adjustment period.
Definition 2
An options contract which puts an upper limit on a floating exchange rate. The writer of the cap has to pay the holder of the cap the difference between the floating rate and the reference rate when that reference rate is breached. There is a premium to be paid by the buyer of such a contract in order to gain the certainty of a maximum payout.
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interest rate cap is ...
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