Could you expand that question a little?
The best I can think of from your question is that you are asking
about an adjustable rate mortgage with an interest rate that is going
to exceed the 'annual cap'.
If that is the question...
There are the cap components to an adjustable rate loan:
1. The initial note rate (interest rate written on the form titled 'Note')
2. The caps (one for the period - which can be annual, and one for the
life of the loan). These set the limits of which the rate can change.
So, to tie this all together... (and the answer will be at the end)...
Your loan starts out at the initial interest rate. At some future
point, as spelled out in the contract that rate will change. It can
only change by the amount of the period CAP. The periods are usually
either 6 months or 1 year. The annual cap sets the maximum the
interest rate can ever be, regardless of the market conditions. So if
your cap is 10% and the market is at 15%, you still have the 10% loan.
So - it's not possible for an adjustable loan to increase its interest
rate beyond the life cap of the loan. Further, it is not possible for
an adjustable loan to increase the rate higher than the period cap for
that period. Nothing stops it from increasing again on the next period
though - up to the life cap.
Hope that helps... |
