What does "Lifetime adjustment cap" mean?

A lifetime adjustment cap sets the maximum increase or decrease in the interest rate of an adjustable-rate mortgage over its entire term. For example, if the cap is 5%, the interest rate can never rise or fall more than 5% from the initial rate throughout the life of the loan. This protects borrowers from extreme fluctuations in their mortgage payments.

A periodic cap limits how much the interest rate can increase or decrease during a specific adjustment period, such as annually. In contrast, a lifetime cap sets the maximum amount the interest rate can change over the entire term of the adjustable-rate mortgage. For example, a periodic cap might be 2%, while a lifetime cap could be 5%.

The 3-7-3 rule in mortgage terms refers to the structure of an adjustable-rate mortgage (ARM) where the initial interest rate is fixed for the three years, followed by adjustments every seven years thereafter. Specifically, the interest rate can adjust up to 3% at each adjustment period after the initial fixed period. This structure helps borrowers understand their potential rate changes over the life of the loan.

The maximum you can borrow on a lifetime mortgage depends on the value of your home and your age. Typically, you can borrow a percentage of your home's value, which can range from 20% to 60%, with older homeowners generally qualifying for higher percentages. The exact amount also depends on the lender's criteria and the equity you have in your property.