Dictionary of Banking Terms: life of loan cap
life of loan cap
contractual provision in an adjustable-rate mortgage limiting the interest rate increase over the amortized life of the loan. For example, a 10% interest rate with a 5% lifetime cap may not increase more than 5% while the loan is outstanding.
Dictionary of Real Estate Terms: life of loan cap
life of loan cap
a contractual limitation on the maximum interest rate that can be applied to an adjustable rate mortgage during the term of the loan.; contrast with annual cap.
Example: An adjustable rate mortgage is offered at the initial interest rate of 7.5% and has a life of loan cap of 5 percentage points. At no time during the term of the loan can the interest rate rise above 12.5%, regardless of how much the index rises.
