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  Interest Cap Definition
Interest Cap When your adjustable-rate mortgage has an interest cap, it means there is a limit as to the amount that your interest rate can go up or down. Interest caps usually fall into one of two categories. A lifetime cap is a limit on the amount that the interest rate can change over the life of the loan and periodic caps are limits to the amount that your interest rate can change at each adjustment period. Sometimes there is a third category of caps, called payment caps. These caps limit the amount that your mortgage payment can go up, but they are not common and should be avoided since they can result in a negative amortization of your mortgage.

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