Interest rate ceiling

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Interest rate ceiling


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.

Interest Rate Ceiling

The highest rate possible under an ARM contract; same as “lifetime cap.”

It is often expressed as a specified number of percentage points above the initial interest rate. See Adjustable Rate Mortgage (ARM)/ How the Interest Rate on an ARM Is Determined.

References in periodicals archive ?
33) Two factors gave impetus to the creation of MMMFs: the high inflation of the 1970s, which became embedded in market expectations, and the rise of market interest rates to levels much higher than those permitted by Regulation Q interest rate ceilings.
Finally, the interest rate ceiling associated with each loan was determined on the basis of the loan size, term-to-maturity, and the type of loan law governing the transaction.
Muscat: Last week, the personal loan interest rate ceiling was reduced to six per cent from seven per cent at the time when the US economy is running into trouble.
This may be attributed to a number of factors, such as depreciation of rupee resulting in the rise in inflows through rupee denominated non- resident Indian ( NRI) accounts to take advantage of the depreciation, hike in interest rate ceilings on NRI deposits since September, 2008 and uncertainties in oilprices, which might have induced the workers to remit their money to India as a hedging mechanism due to its relatively better growth prospects," the report said.
In those days, there were interest rate ceilings - a legacy of the Great Depression of the 1930s -- on the interest rates financial institutions could pay for deposits.
Interest rate ceilings are imposed on borrowers by state governments.
Interest rate ceilings on deposits, if binding, remove the opportunity to compete since a new entrant cannot attract the inefficient incumbent's customers by offering a better interest rate.
But it is clear from the report that they have failed to consider key issues concerning the operation of interest rate ceilings that should have been picked up if they had read the literature available from the USA and Germany.
When interest rates went up and impinged upon the interest rate ceilings, the commercial banks could not raise money.
For years now, credit card companies have gotten around state-imposed interest rate ceilings by adopting a federal charter in a liberally regulated state (that's the reason why so many credit card issuers are based in Delaware).
During the time that interest rate ceilings were in effect, the impact of monetary policy on the housing market tended to occur more through credit availability effects than through an interest rate channel.
Interest rate ceilings and trading practices were controlled as well.