What is Interest Cap?

Interest cap or also used as interest rate cap or interest rate ceiling. This means that whenever a customer applies for an adjustable rate mortgage there might be a preset maximum interest rate. In more common terms the interest what financial institutions can charge is expressed as an absolute percentage.

For example when you apply for an adjustable rate mortgage then in the contract might be stated that the max interest what you will be paying is 18% and this will never go up, in short it’s a protection ceiling. Now another example when the interest cap is set to 4% that means if the rate has been changed then the amount you will be paying will be in the 4% range, so if your rate after adjustment is 10% and the cap is 4% then you’ll be paying in the range of 6% and 10%.