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Cap

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.

Cap

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.

cap

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

Cap.

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.

CAP

see COMMON AGRICULTURAL POLICY.

cap

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

Cap

Same as Float-Down.

References in periodicals archive ?
The court heard that, if possible, father-of-three Capper he wants to write a letter to all those on the aircraft to apologise.
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Bench chairwoman Elizabeth Haskins said although Miss Capper had not complied with rules set down by the school, she had done her best to comply with the law by contacting the school.
Mr Capper's son Michael has since paid tribute to his dad.
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Readers who wish to delve more deeply into the cultural, intellectual, and political contexts that shaped Fuller's literary awareness will want to turn to Capper's monumental Margaret Fuller: An American Romantic Life.
In examining Fuller's close, intense, and often vexed relationship with Ralph Waldo Emerson, for example, Capper concludes that what Fuller "seems to have wanted (to translate her Romantic idiom into a psychoanalytic one) was to transfer her blocked childhood need for loving acceptance onto him, 'as a father,' so that she might cease mourning for it" (29).
Under Capper's leadership CCS Medical's annual sales grew from about $60 million to more than $500 million.
Capper's 1,000-page monument is the first to take full measure of her genius.
Senate worked for Capper Publications from 1934 to 1941, when he was called into active duty in the Army.
What is new, claims Mooter CEO Liesel Capper, is that Mooter does it better.