An ARM’s caps set the most the rate can rise. This shows the payment if it rises that far, as fast as allowed.
How it works
Worst-case rate = start rate + the most each cap allows, until the lifetime cap
After the fixed period the rate rises by the first cap, then by the later cap at each adjustment, never above start rate plus lifetime cap. The payment is recalculated on the remaining balance each time. Enter a fixed rate to compare: the saving during the fixed period against the worst case afterwards.
Keep in mind
- This is the ceiling, not a forecast: the actual rate follows the index plus the margin, and can also fall.
- Interest-only ARMs work differently and are not covered here.
Questions
What do ARM caps like 2/1/5 mean?
The rate can rise at most 2 points at the first adjustment, 1 point at each later one, and 5 points in total over the life of the loan.
