interest rate cap

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Interest rate cap

An interest rate agreement in which payments are made when the reference rate exceeds the strike rate. Also called an interest rate ceiling. Related: Interest rate floor.

Ceiling

The maximum interest rate that may be charged on a contract or agreement. For example, an adjustable-rate mortgage may have an interest rate ceiling stating that the rate will not go over 9% even if the formula used to calculate the interest rate would have it do so. An interest rate ceiling reduces the risk of the party paying the interest. It is also called an interest rate cap. See also: Interest Rate Floor.

interest rate cap

In an adjustable-rate mortgage, a ceiling on the amount the interest rate may increase during any described period,such as one year,or over the lifetime of the loan.

References in periodicals archive ?
A capped FRN is a floating rate note combined with an interest rate cap, while a collared FRN is one that combines both an interest rate cap and floor.