The limit on the number of times an interest rate can be adjusted on an adjustable-rate mortgage over a 12-month period.
is the limit on how high the interest rate of an ARM can rise during the single year. Annual caps are specified in all of the better ARM mortgage programs. Don't sign without one.
The limit on the amount an adjustable rate mortgage's interest rate can change over a 12-month period. An annual cap prevents your payments from changing too dramatically, even if the factors that determine changes in an adjustable mortgage's rate rise or fall sharply during that period.