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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


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


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.


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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.


Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005


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.


Same as Float-Down.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
References in periodicals archive ?
But the Dutch cap brushed himself down and got on with the game.
DUTCH BOSS: Advocaat; DUTCH CAP: Ricksen has played for Holland in their last two games; OLD FIRM THRILLER: De Boer heads past Celtic's Rab Douglas
Then, for Sir Robin Day, she was "a tease", and she discloses that she wore a Dutch Cap (presumably on the days it wasn't keeping Bernie Ecclestone's head warm).
Konterman, who will return from suspension to face Aberdeen at Pittodrie this evening, saw his Dutch cap tally stall under previous boss Louis Van Gaal.
Konterman, who will return from suspension for Rangers to face Aberdeen at Pittodrie this evening, saw his Dutch cap tally stall under previous boss Louis Van Gaal.
Ironically, the marriage which has done so much for his career did cost him a Dutch cap when he was forced to withdraw from the squad to face Ireland because the dates clashed.
And now, to Dutch cap it all, the British TV producers Planet 24 are suing the Hilversum-based company Endemol, claiming that Big Brother is a rip-off of a format called Survive!, which they devised back in 1988.