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  • A cap is a ceiling, or the highest level to which something can go.

    For example, an interest rate cap limits the amount by which an interest rate can be increased over a specific period of time. A typical cap on an adjustable rate mortgage (ARM) limits interest rate increases to two percentage points annually and six percentage points over the term of the loan.

    In a different example, the cap on your annual contribution to an individual retirement account (IRA) is $4,000 for 2006 and 2007 and $5,000 in 2008, provided you have earned at least that much. If you're 50 or older, you can make an additional catch-up contribution of $1,000 each year.

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  • To prevent excessively high payment increases, ARM's place a cap on the amount by which the interest rate may rise at any single adjustment, over the life of the loan, or both.

    State of Maine, Department of Professional and Financial Regulation - Cite This Source - This Definition

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  • A limit placed on adjustments in adjustable rate mortgages to protect the borrower from large increases in the interest rate or the payment level.

    U.S. Census Bureau - Cite This Source - This Definition
  • A limit in how much an adjustable rate mortgage's monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount of the interest rate. A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan. An annual cap limits the amount the interest rate can increase over a twelve-month period.

  • A limit, such as one placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.

    US Department of Housing and Urban Development - Cite This Source - This Definition
  • For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease. See also "Lifetime Payment Cap," "Lifetime Rate Cap," "Periodic Payment Cap," and "Periodic Rate Cap"

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  • Your ability to make your mortgage payments on time. This depends on your income and income stability (job history and security), your assets and savings, and the amount of your income each month that is left over after you've paid for your housing costs, debts and other obligations.

    Federal Trade Commission - Cite This Source - This Definition
  • The ability to make mortgage payments on time, dependant on assets and the amount of income each month after paying housing costs, debts and other obligations.

    US Department of Housing and Urban Development - Cite This Source - This Definition

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  • Capital is money that is used to generate income or make an investment. For example, the money you use to buy shares of a mutual fund is capital that you're investing in the fund.

    Companies raise capital from investors by selling stocks and bonds and use the money to expand, make acquisitions, or otherwise build the business.

    The term capital markets refers to the physical and electronic environments where this capital is raised, either through public offerings or private placements.

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