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Loan Glossary

Caps:

A set percentage amount by which an adjustable rates mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime. Loans like the 3/1 and 5/1 adjustable, which have an initial fixed period are quoted with numbers as in 2/6/3 which would mean that the first adjustment may be as much as 3%, subsequent adjustments are capped at 2% each, and the lifetime cap is 6%. Two-Step loans are quoted with a single cap, which is the amount by which the loan may adjust at its single adjustment date.