Cap

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

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

cap

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.

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.

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

CAP

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

cap

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.

Cap

Same as Float-Down.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.