Real Estate Glossary

What is Payment Cap?

Payment Cap - A payment cap is a limit on the amount that the interest rate on an adjustable rate mortgage (ARM) can increase over the life of the loan. This cap helps to protect borrowers from large increases in their mortgage payments if interest rates rise significantly. A payment cap ensures that the borrower's mortgage payments do not become unaffordable, even if interest rates rise. It provides the borrower with a level of predictability and stability in their mortgage payments.