Definition: A contractual limit on how much the required payment on an adjustable-rate mortgage may change at an adjustment.
Example
A loan limits a payment increase even though the interest rate has risen further.
Keep the distinction clear
A payment cap does not necessarily cap interest. If the required payment does not cover accrued interest and the contract allows it, unpaid interest may increase the loan balance.
Related terms
Adjustable-Rate Mortgage (ARM) ยท Negative Amortization
Keep studying
References: CFPB: Consumer Handbook on Adjustable-Rate Mortgages
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