Caps, Ceilings, and Floors of a Mortgage

When it comes to adjustable-rate mortgages, everyone has rate caps, which are also known as floors and ceilings. These caps determine how much an interest rate can increase or decrease at each adjustment period as well as over the life of the entire mortgage loan.

As an example, a 10/1 ARM along with a 7/3/7 cap structure means that for the first ten years of the mortgage, the interest rate remains unchanged. On the eleventh year, the rate can increase to a maximum of seven percent, above the starting interest rate. Each and every year after that and for the remainder of the loan, the percentage can increase up to three percent every year but no more. However, the interest rate can never increase by more than seven percent in the entire life of the loan which is represented by the third number. If you are looking for more mortgage information, go over to Home Mortgage in Charlotte and you will find some great insight about this topic.

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