Previously, 2-point annual rate caps blunted the full blow of fast-rising rates.
But after that, he adds, consumers should calculate how those savings would be eaten up by a 2 to 5 percent jump in rates. Periodic caps limit the amount your interest rate can increase from one adjustment period to the next. No one can credibly forecast rates more than a year in advance, let alone 3, 5, 7, or 10. How long do you plan to own the house? The possibility of rate increases isn't as much of a factor if you plan to sell the home within a few years.
Previously, 2-point annual rate caps blunted the full blow of fast-rising rates. The most common is 12 months, which means your payment could change at most once per year. If current interest rates are very high, this could be the only loan choice available to you.