What is the term for the limit on the interest rate fluctuations during an adjustment period in an adjustable rate mortgage?

The term for the limit on interest rate fluctuations during an adjustment period in an adjustable rate mortgage is known as a periodic rate cap. This feature is designed to protect borrowers from significant increases in their interest rates at each adjustment period, establishing a maximum amount by which the interest rate can increase or decrease.

For example, if a borrower has a loan with a periodic rate cap of 2%, and the current interest rate is 4%, the maximum the rate could rise to at the next adjustment would be 6%. This ensures that the borrower can anticipate and manage possible changes in their mortgage payments, contributing to more stable financial planning.

The other terms listed have different meanings in the context of real estate and mortgages. PITI refers to principal, interest, taxes, and insurance, which are the components of a monthly mortgage payment. A point is a fee that equals 1% of the total loan amount, generally used to buy down the interest rate. Prepayment refers to the payment of a loan before its due date, often incurring penalties or fees, depending on the loan agreement. Each of these terms is significant in their own right but does not pertain to limiting interest rate fluctuations, which is specifically addressed by the periodic rate cap.