By opting for a capped variable rate when you take out your mortgage, you can protect yourself against rate increases. The rate will fluctuate depending on the market, but will never exceed a threshold established when you take out a mortgage.
What is capped interest rate?
A capped rate is an interest rate on a loan that has a maximum limit on the rate built into the loan. A capped rate adjusts based on a benchmark interest rate below the limits of the cap. Capped rates limit the borrower's risk of rising interest rates and allow the lender to earn a higher return when rates are low.
What mortgage has an interest rate cap?
Adjustable-rate mortgages (ARMs) typically include several kinds of caps that control how your interest rate can adjust. There are three kinds of caps: Initial adjustment cap. This cap says how much the interest rate can increase the first time it adjusts after the fixed-rate period expires.
What is capped rate mortgage in Canada?
A capped rate is an interest rate that fluctuates but never exceeds the interest rate cap. The cap is the maximum interest rate you pay on your loan. This rate is offered with a five-year term.
What is a 3 2 6 rate cap?
Rate caps are 3/2/6. The start rate is 3.50% and the loan adjusts every 12 months for the life of the mortgage. The index used for this mortgage is LIBOR (for this exercise, 3.00% at the start of the loan, 4.45% at the end of the first year, and 4.50% at the end of the second year).