Want to know about lifetime cap

Guest

Hi,

I am about to take an ARM. pls let me know about lifetime cap.

Caron · Posted: Sat Oct 08, 2005 10:02 am Post subject: RE:

Hi Jacob
Welcome to MortgageFit forum.

The lifetime rate cap in an adjustable rate mortgage (ARM) refers to the limit on the amount by which the rate can increase or decrease throughout the life of the loan. The lifetime cap protects a borrower from very high interest payments throughout the life of the loan.

For instance, if an ARM has an initial rate of 6% and a lifetime cap of 7 percentage points, then the interest rate on the ARM must not exceed 13%, although the rates in a fixed rate loan may go up to 20%.

Hope we have been able to help you.

Regards,
Caron.

Niicss · Posted: Sat Oct 08, 2005 10:08 am Post subject: RE

Hi,

Life time cap is the limit on the amount by which interest rate on the ARM (adjustable rate mortgage) increase or decrease during the mortgage term.

It generally varies from lender to lender, but most ARMs have caps of 5% or 6%.

On the other hand, a periodic or adjustment cap limits how much the interest rate can rise at one time. In general, 6 months ARM has a cap of 1% and 1 year ARM has 2% cap.

Periodic and lifetime caps are quoted as two numbers as in 3/5 which would mean that periodic cap is 3% and the lifetime cap is 5%.

Examples: The initial interest rate is 4.8%, the index is 5%, and the margin is 2%, then the new interest rate = 5% + 2% = 7%. If the lifetime cap is 6% then the interest rate cannot exceed = 4.8% +6% = 10.8%

Hope this will give you the idea of caps.

Thanks

Niicss

[Edited by Jessica, made minor changes. Thanks.]

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