A provision in some adjustable-rate mortgages (ARMs) which limits the amount by which the payment may increase, regardless of increases in the interest rate. Payment caps can lead to negative amortization.
A maximum amount for a payment under an adjustable rate mortgage, regardless of the increase in the interest rate. If the payment is less than the interest rate alone, negative amortization is created.
With regard to an adjustable rate mortgage, this limits the amount of increase in the borrower's monthly principal and interest at the payment adjustment date, if the principal and interest increase called for by the interest rate increase exceeds the payment cap percentage. This limitation is often at the borrower's option and may result in negative amortization.
Caps apply to adjustable rate mortgages (ARMs). To minimize the risk of extreme fluctuations in interest rates, caps are imposed on your rate. Caps protect you by limiting the percentage by which your rate can increase.
A limit on the amount that the monthly payments on an adjustable rate mortgage can increase or decrease at each adjustment period. For example, if your monthly payments start at $1,000 and the ARM has a payment cap of 7.5%, the next adjustment cannot exceed plus or minus $75 per month regardless of how much the loan's index changes. This can lead to negative amortization if the interest rate goes up and the monthly payment amount is too small to cover the increased interest charges.
Used instead of a "rate" cap. Payment caps can prevent the monthly payment from rising out of control, however the interest rate is not limited. The difference if the rate exceeding what the payment cap limits, the result will incur negative amortization, which increases, rather than decreases, conventional amortization values.
A limit on the amount that the monthly payment can increase. A periodic cap limits the amount of the increase at each adjustment period. A lifetime cap limits the amount that the monthly payment can increase during the term of the loan. A potential peril of payment caps is negative amortization. In the case of an adjustable-rate mortgage with a payment cap, rising interest rates may casue the loan payment tobe insufficient to cover even the interest portion of the scheduled payment. In this case, the unpaid interest may be added to the mortgage loan principal, if the loan agreement permits.
A provision of some Arms limiting the amount by with which a borrower's payments may increase regardless of any interest rate increases; may result in negative amortization. See Adjustable-rate mortgage.
A limit on how much the monthly payment for an Adjustable Rate Mortgage can increase. This doesnâ€(tm)t limit the amount of interest the lender is earning just the amount you pay so negative amortization may result.
For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.
A contractual limit on the percentage amount of adjustment allowed in the monthly payment for an adjustable rate mortgage at any one adjustment period. Generally it does not affect the interest rate charged. If the allowable payment does not cover interest due on the principal at the adjusted rate of interest, negative amortization will occur.
Consumer safeguards which limit the amount monthly payments on an adjustable-rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.
This limited amount by which the payment on a variable rate loan can increase or decrease at each payment adjustment interval (typically one year). A payment cap ensures that the payment changes occur at a gradual pace.
A cap placed on the borrower's payment rather than his interest rate. The level to which the monthly payment may rise is limited to a certain dollar figure. A typical payment cap used today would be 7.5% of the payment (Roughly equivalent to one percent in interest). back