annual cap

Annual Cap

The maximum amount that an interest rate on an adjustable-rate mortgage may change in a single year. For example, an adjustable-rate mortgage may have an annual cap stating that the rate will not go up more than 1.5% each year. This concept is similar to an interest rate ceiling, but an annual cap does not specify a maximum interest rate. Instead, it limits the speed at which a rate increases.

annual cap

An agreed-upon limit on the amount an adjustable-rate mortgage may increase the interest rate each year.Consumer mortgages usually have annual caps; commercial mortgages usually do not.