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payment cap |
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payment cap A limit on the allowable increase of mortgage payments under an adjustable-rate mortgage.The typical horror story used to illustrate this principle envisions interest rates increasing dramatically so that a capped payment is no longer sufficient to pay accrued interest,much less any principal reductions. In such a situation, the accrued but unpaid interest is added to the principal, making the loan grow larger over time rather than smaller. In most of the real world, loans with payment caps also have interest rate caps, so it is contractually impossible for interest rates to climb to an amount causing negative amortization. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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