Interest Rate Cap

An interest rate cap is a financial agreement that limits how high the interest rate on a loan can rise over a certain period. If market rates increase beyond the cap level, the borrower’s interest payments won't go higher than the capped rate, providing protection against rising costs. This is often used in adjustable-rate loans, giving borrowers certainty and helping manage future payment risks. The cap essentially sets an upper limit, ensuring that even if interest rates surge, the borrower’s payments won’t exceed a predetermined maximum.