Cap Structure


An interest rate cap structure determines the maximum amount by which your interest rate can increase. There are initial, periodic/subsequent, and lifetime caps. A cap structure is represented in a series of three numbers. For example, a 5/1 ARM with a rate cap of 2/2/5. could only increase by 2% after 5 years, could only increase by 2% every subsequent year, but cannot increase more than 5% in the lifetime of the loan. So if you started with a 2.75% interest rate, you could never go above 7.75%