An interest rate cap is a limit on how high an interest rate can rise on an ARM loan. Interest rate caps can have an overall limit on the interest for the loan and also be structured to limit incremental increases in the rate of a loan.
If "Has Per-Change Percentage Cap?" is not selected then the below screenshot of the selection and output in the Promissory Note will come in:
OPTIONS
"Has Per-Change Percentage Cap?" and a "Yes" is selected then the below is the output in the Promissory Note:
There is an additional option when choosing Yes to "Has Per-Change Percentage Cap?": “First Rate Change Percentage Cap (over Initial Rate)” can be selected as Yes or No.
If yes is selected:
The difference between choosing the First Rate Change Percentage Cap (over Initial Rate) check box or not can be seen in the comparison below between docs that have the Per Change Percentage Cap for 1st Adjustment selected versus docs that do not have the Per Change Percentage Cap for 1st Adjustment:
The Adjustable Interest Rate, when capped at 1% for the First Adjustment over the Initial Rate of 4.50%, is 5.50% in comparison when there is no cap rate for the first adjustment and the Adjustable Interest Rate will not be greater than the Maximum Interest Rate of 6.15% in this scenario: