Cap

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Cap

An upper limit on the interest rate on a floating-rate note (FRN) or an adjustable-rate mortgage (ARM). Also, an OTC derivatives contract consisting of a series of European interest rate call options; used to protect an issuer of floating-rate debt from interest rate increases. Each individual call option within the cap is called a caplet. Opposite of a floor.

Cap

1. Informal for market capitalization.

2. In a floating-rate note or an adjustable-rate mortgage (ARM), the highest possible interest rate. For example, if one has an adjustable-rate mortgage on a house, the interest rate fluctuates periodically. However, if the homeowner has a cap on the interest rate, there is a guarantee that it will never rise above a certain percent, no matter what the ARM formula would otherwise dictate. A cap is designed to protect the person or company making the interest payments. See also: Floor, Collar.

cap

1. An upper limit on the interest rate to be paid on a floating-rate note.

Cap.

A cap is a ceiling, or the highest level to which something can go.

For example, an interest rate cap limits the amount by which an interest rate can be increased over a specific period of time. A typical cap on an adjustable rate mortgage (ARM) limits interest rate increases to two percentage points annually and six percentage points over the term of the loan.

In a different example, the cap on your annual contribution to an individual retirement account (IRA) is $4,000 for 2006 and 2007 and $5,000 in 2008, provided you have earned at least that much. If you're 50 or older, you can make an additional catch-up contribution of $1,000 each year.

CAP

see COMMON AGRICULTURAL POLICY.

cap

A ceiling on the adjustments that can be made in the payments or interest rate of an adjustable-rate loan.

Cap

Same as Float-Down.

References in periodicals archive ?
Let's face it this is not the first time Dutch caps have been employed to stop anything creative.
So hats - or Dutch caps - off to George Boateng (right) for reviving it this week with this collection of splendid cliches from the Netherlands.
Once they are, they buy hoop earrings, hoodies, Von Dutch caps, and fake Louis Vuitton bags.