Accumulator Cap

Accumulator cap refers to a limit or cap placed on the amount of interest that can be charged or accrued on an adjustable-rate mortgage (ARM) during a specific time period.

With an adjustable-rate mortgage, the interest rate can fluctuate over time based on changes in a specified benchmark, such as the prime rate or the London Interbank Offered Rate (LIBOR). The interest rate adjustments typically occur at predetermined intervals, such as annually or every few years.

To protect borrowers from excessive interest rate increases, an accumulator cap is often included in the terms of the mortgage. This cap sets a maximum limit on how much the interest rate can increase during a specific time period, such as a year or over the life of the loan.

For example, if an adjustable-rate mortgage has an accumulator cap of 2%, it means that the interest rate cannot increase by more than 2% in a given year, even if the benchmark rate increases by a larger amount. This provides borrowers with some stability and protection against sudden and significant increases in their mortgage payments.

It's important to note that accumulator caps can vary depending on the specific terms of the mortgage agreement. Some adjustable-rate mortgages may have a lifetime cap, which sets a maximum limit on how much the interest rate can increase over the entire term of the loan.

Accumulator caps are designed to provide borrowers with some predictability and protection in a changing interest rate environment. It's important for borrowers to carefully review and understand the terms of their adjustable-rate mortgage, including any accumulator caps, before entering into the loan agreement.