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 ?
The problem was his knee cap but the operation went well.
Daniel Agger is playing with a minor fracture in his knee cap
David Murphy, who broke his knee cap in April, has been held back.
The Killie coach said: "Garry has a wee crack in his patella, which is the knee cap.
At first, the knee injury was misdiagnosed and it took three doctors to figure out it was a broken knee cap.
Giteau (pictured) sustained a fracture to his knee cap during the Wallabies' loss to England at Twickenham and was forced to miss the last two games against Ireland and Wales.
His knee cap had popped out and so we rushed him off the A&E at North Tees.
Studley could have hot-shot Craig Pountney back in action before Christmas after further checks revealed ligament damage rather than a broken knee cap.
Your middle finger will be over the centre of the knee cap.
POLICE are appealing for witnesses to an accident on Allesley Old Road, Allesley, Coventry, last night which left a 16-year-old motorcyclist with a broken knee cap.
And a pal tells us that he also wants an eye on his knee cap.
But the Wasps star returned to action on October 1, six weeks ahead of schedule and just 24 hours after Wilkinson suffered a dislocated right knee cap.