interest rate cap

Definitions (2)

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.

Use interest rate cap in a sentence

You should try to make sure that you shop around so that you are not paying the interest rate cap on your loan.

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I did not mind purchasing a new house using an adjustable rate mortgage because they placed an interest rate cap that would not allow it to go above 6%.

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In his mortgage documents there was a section regarding the interest rate cap on the adjustable rate. It would not exceed a 1% adjustments in any period.

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