Capped Rate

An interest rate that is allowed to fluctuate, but which cannot surpass a stated interest cap. For example, a 10-year loan may be issued to a borrower at 6%, but with a capped rate of 9%. The interest rate can thus fluctuate up and down, but can never go higher than the 9% capped rate. Capped rates are supposed to provide the borrower with a hybrid of a fixed and variable rate loan. The fixed part comes from the capped rate itself, while the variable part comes from the loan's ability to move up or down with market fluctuations.

If the variable rate on a similar loan goes above the capped rate, the capped rate loan holder gets the benefit of not having to pay the extra portion. While this is a benefit, capped rate loans can have higher interest rates than a traditional fixed rate loan.


Investment dictionary. . 2012.

Look at other dictionaries:

  • capped rate — ➔ rate1 * * * capped rate UK US noun [C] ► FINANCE, PROPERTY an interest rate on a loan that will not rise above an agreed rate for an agreed period of time: »A capped rate guarantees your mortgage will not rise above a certain level …   Financial and business terms

  • capped-rate — UK US adjective [before noun] ► FINANCE, PROPERTY a capped rate loan is one with an interest rate that will not rise above an agreed rate for an agreed period of time: »a capped rate mortgage/loan »If the home buyer wants security against rising… …   Financial and business terms

  • capped rate — /ˌkæpt reɪt/ verb a mortgage rate which is guaranteed not to go above a certain level for a set period of time, although it can move downwards …   Dictionary of banking and finance

  • capped-rate mortgage — ➔ mortgage1 …   Financial and business terms

  • rate — The cost of debt service paid by a borrower or issuer to a lender or investor. The rate is expressed as an annual percentage of the amount borrowed. For some notes and bonds that pay interest semiannually, the semiannual interest due to the… …   Financial and business terms

  • rate-cap — rate caps, rate capping, rate capped 1) VERB: usu passive In Britain, when a local council was rate capped, the government prevented it from increasing local taxes called rates, in order to force the council to reduce its spending or make it more …   English dictionary

  • capped floating-rate note — capped FRN See: floating rate note …   Accounting dictionary

  • capped FRN — capped floating rate note …   Accounting dictionary

  • capped floating rate note — /ˌkæpt fləυtɪŋ reɪt ˌnəυt/ noun a floating rate note which has an agreed maximum rate …   Dictionary of banking and finance

  • Capped Note —    A floating rate instrument with a cap that places a maximum coupon rate on the issue.    ► See also Cap …   Financial and business terms

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