interest rate cap

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Interest rate cap

An interest rate agreement in which payments are made when the reference rate exceeds the strike rate. Also called an interest rate ceiling. Related: Interest rate floor.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


The maximum interest rate that may be charged on a contract or agreement. For example, an adjustable-rate mortgage may have an interest rate ceiling stating that the rate will not go over 9% even if the formula used to calculate the interest rate would have it do so. An interest rate ceiling reduces the risk of the party paying the interest. It is also called an interest rate cap. See also: Interest Rate Floor.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

interest rate cap

In an adjustable-rate mortgage, a ceiling on the amount the interest rate may increase during any described period,such as one year,or over the lifetime of the loan.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
The guidance pertaining to the transferability of the interest rate cap is not included in SFAS 133, but rather in interpretative guidance.
In addition, the amount of interest expense would be subject to the interest rate caps based on Moody averages.
On behalf of the consumer lobby, Proxmire resisted adjustable rate mortgages--he now admits he was wrong--and insisted that the deposit interest rate cap be lifted.
Depending upon market conditions, it also would be possible to eliminate the variable-rate risk by purchasing an interest rate cap and locking in the spread between the cost of the cap and the savings on the indexed/fixed-rate bonds, if any.
An increase of non- performing loans has already elicited worry from the International Mon- etary Fund (IMF), which has asked the CBK to be vigilant and requested that the Treasury remove the interest rate caps as small banks and borrow- ers are facing a crunch time.
"We can't say for sure how the interest rate cap will affect the banking sector [because] there is insufficient data available to us at the moment," the governor says.
Previously DEF had purchased an interest rate cap of 10% on the $1,000,000 principal.
Interest rate caps, floors and collars are illustrated and their risks explained in the first part of a two-article series on innovations in municipal capital markets.
While it is true that the global economy has lost momentum, Kenya's economic pains are mostly self-inflicted, and the solutions are readily available.For starters, Parliament must humbly accept to untie the hands of Central Bank by removing the interest rate cap legislation and allow the banking regulator the space to apply the optimal monetary policy.
While typical Dutch deals address the resulting interest rate risk with a total return swap, this transaction features a 10-year interest rate cap with a strike rate of 3.5%.
Fannie Mae's vice president of capital markets and trading Josh Seiff said, "Our December deal featured 96 of our ARM 7-6 (i.e., seven-year loan with six percent lifetime interest rate cap) loans in group two--approximately USD637 million in collateral.