Interest rate cap

How it is used

A cap may be a loan feature or a separate derivative; specify which meaning applies.

Example sentences

1. The borrower purchased an interest rate cap for the floating-rate loan.

   The instrument limits exposure to rates above the agreed strike.

2. The agreement contains an interest rate cap on annual rate adjustments.

   A contractual ceiling limits an adjustment under the stated terms.

Common collocations

• interest rate cap premium
• contractual interest rate cap

Related terms

• variable rateAn interest rate that can go up or down during a loan or deposit term, usually because it follows a benchmark rate.
• hedgeTo reduce the risk of losing money from changes in prices, interest rates or exchange rates, usually by taking an opposite position with derivatives.

More terms: Interest & Exchange Rates

• interest rate
• fixed rate
• APR
• exchange rate
• foreign exchange
• compound interest
• maturity
• basis point
• policy rate
• inflation
• spread
• accrue