Adjustable Rate Mortgage Caps Law and Legal Definition
The adjustable rate mortgage caps are limits applied over one’s Adustable rate mortgage (ARM) interest rates. ARMs have many features to distinguish them from fixed rate mortgages and other ARMs.
ARM caps are a description of the limitations set for maximum interest adjustments that can apply during the term of the mortgage loan, and defined in the loan agreement. Periodic rate caps and lifetime rate caps are examples of ARM caps.
The following is an example of a federal statute on the term:
12 USCS § 3806. Adjustable rate mortgage caps
(a) In general. Any adjustable rate mortgage loan originated by a creditor shall include a limitation on the maximum interest rate that may apply during the term of the mortgage loan.
(b) Regulations. The Board of Governors of the Federal Reserve System shall prescribe regulations to carry out the purposes of this section.
(c) Enforcement. Any violation of this section shall be treated as a violation of the Truth in Lending Act [15 USCS §§ 1601 et seq.] and shall be subject to administrative enforcement under section 108 [15 USCS § 1607] or civil damages under section 130 of such Act [15 USCS § 1640], or both.
(d) Definitions. For the purpose of this section--
(1) the term "creditor" means a person who regularly extends credit for personal, family, or household purposes; and
(2) the term "adjustable rate mortgage loan" means any consumer loan secured by a lien on a one- to four-family dwelling unit, including a condominium unit, cooperative housing unit, or mobile home, where the loan is made pursuant to an agreement under which the creditor may, from time to time, adjust the rate of interest.
(e) Effective date. This section shall take effect upon the expiration of 120 days after the date of enactment of this Act [enacted Aug. 10, 1987].