Also found in: Dictionary, Thesaurus, Medical, Legal, Acronyms, Idioms, Encyclopedia, Wikipedia.


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.


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.


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


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.




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


Same as Float-Down.

References in classic literature ?
The sweet scents of the summer night rose all around him, and rose, as the rain falls, impartially, on the dusty, ragged, and toil-worn group at the fountain not far away; to whom the mender of roads, with the aid of the blue cap without which he was nothing, still enlarged upon his man like a spectre, as long as they could bear it.
We all three went to it, behind the wire blind, and presently saw the client go by in an accidental manner, with a murderous-looking tall individual, in a short suit of white linen and a paper cap.
All present laughed at the number of caps and the novelty of the suit; Sancho set himself to think for a moment, and then said, "It seems to me that in this case it is not necessary to deliver long-winded arguments, but only to give off-hand the judgment of an honest man; and so my decision is that the tailor lose the making and the labourer the cloth, and that the caps go to the prisoners in the gaol, and let there be no more about it.
On the door-stone stood a clean old woman, in a dark-striped linen gown, a red kerchief, and a linen cap, talking to some speckled fowls which appeared to have been drawn towards her by an illusory expectation of cold potatoes or barley.
They found the doctor seated in his little study, clad in his dark camlet[1] robe of knowledge, with his black velvet cap, after the manner of Boerhaave,[2] Van Helmont,[3] and other medical sages, a pair of green spectacles set in black horn upon his clubbed nose, and poring over a German folio that reflected back the darkness of his physiognomy.
These six men were Gilbert o' the Red Cap, Adam o' the Dell, Diccon Cruikshank, William o' Leslie, Hubert o' Cloud, and Swithin o' Hertford.
The German laughed, came out of the cowshed, pulled off his cap, and waving it above his head cried:
It was a pretty picture to see this little lady in white muslin unfastening the widow's cap from her more majestic sister, and tossing it on to a chair.
Aunt Plenty was too absorbed in the dinner to have an eye for anything else; if she had not been, she would have seen what an effect her new cap produced upon the boys.
Her time was past, she said, for such frivolities, and she offered the instrument for the breakfast cap of which Saxon had made so good a success.
Noah stopped to make no reply, but started off at his fullest speed; and very much it astonished the people who were out walking, to see a charity-boy tearing through the streets pell-mell, with no cap on his head, and a clasp-knife at his eye.
Nine-tenths of the Heidelberg students wore no badge or uniform; the other tenth wore caps of various colors, and belonged to social organizations called "corps.