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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
cap
1. An upper limit on the interest rate to be paid on a floating-rate note.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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.Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
cap
A ceiling on the adjustments that can be made in the payments or interest rate of an adjustable-rate loan.
The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
Cap
Same as Float-Down.
The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.