What Is an Interest Rate Cap and How Does It Protect Me?

An interest rate cap puts a limit on how much your loan’s interest rate can increase. It can protect you from very large increases in your monthly payment when market interest rates go up.

For example, if your loan has a 6% interest rate with a 2% cap, the rate cannot increase by more than 2% during the specified period. So even if market rates rise sharply, your loan rate has a set limit.

The important thing is to check what type of cap your loan has. Some caps limit increases each year, while others set a maximum rate for the entire loan. Also check the terms because a cap does not always mean your payment itself cannot increase. It's better to use Chatham Rate Cap Calculator.