Interest Rate Caps
Depending on the type of mortgage selected, interest rate caps offer some protection for homeowners who opt to finance their home with an adjustable rate mortgage. An interest rate cap sets a limit on the amount the interest rate can increase. There are two types of interest rate caps. A periodic adjustment cap limits the amount an interest rate can increase or decrease between two adjustment periods after the first adjustment. A lifetime cap limits the amount the interest rate can increase over the duration of the loan.
Payment caps follow a similar structure as interest rate caps. Payment caps limit the amount the monthly payment may increase from one adjustment period to another, instead of the amount the interest rate can increase.
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