Capped Loan

A capped loan is a loan wherein the interest rate may go lower than, but cannot exceed, a preset level. It offers some of the flexibility of a variable rate loan and the security of a fixed rate loan. Unlike a fixed rate loan, however, it can decrease its interest rates over time if the market rates allow. The protection applies for a limited period, usually the first few years of a loan. After the capped period, you can either switch to a fixed or variable rate, depending on the loan terms.