Mortgage Glossary
Rate
The percentage of interest paid to borrow money from a lender. See Interest Rate.
Rate Cap
The limit on how much the interest rate on an adjustable rate mortgage (ARM) loan can change during an adjustment period, or over the life of the loan. For example, suppose a lender offers a rate cap of 1% and the current interest rate is 6%. Based on the cap, the interest rate will stay between 5% and 7% at each adjustment. A lender will provide this information for each of its adjustable rate mortgage products.
Rate Float
When an interest rate has not been secured by a rate lock or rate protection, it will fluctuate—or "float"—according to market conditions.
Rate Lock
A lender's commitment to provide a loan at a specified interest rate as long as the loan closes by a specified expiration date. Some lenders will offer a rate lock extension, though an additional fee might be charged.
Rate Protection
Protection against an increase in an interest rate between the time you apply for a loan and closing. Usually, there is a cap added to the rate. The cap represents the maximum rate you will pay as long as the loan closes on time, even if rates increase. If rates drop, you will have a one-time option to lock in at a lower rate.
