Real Estate Terms Glossary
What is an Interest Rate Cap?
A type of interest rate derivative, an interest rate cap, is an insurance policy on a floating interest rate, usually one-month LIBOR. Note that it has three main economic terms: term, notional, and strike rate. Did you know that an interest rate cap helps ensure that you don’t pay any more than a certain pre-determined level of interest on the loan? This insulates you against extreme or volatile rate jumps over the term of your loan.
Examples of Interest Rate Cap
- Example 1: Initial interest rate cap
Here’s Investopedia’s definition of an Interest Rate Cap .
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