MARKETS GLOSSARY
Rate Cap
Interest Rate Cap
A derivative limiting a floating reference rate above an agreed strike level.
What does Rate Cap mean?
A derivative limiting a floating reference rate above an agreed strike level. Professionals may calculate, document or apply this concept differently depending on the transaction, accounting method, lender policy and governing documents. Borrowers should confirm the precise definition used in any term sheet or agreement.
Rate Cap in context
A bridge lender may require a SOFR cap for the loan term.
Why it matters in financing
Rate Cap can influence how a lender, investor or advisor evaluates risk, pricing, structure, repayment capacity or transaction economics. It should be considered together with the complete financial picture rather than used alone.
Related markets terms
Educational information only. This definition is general, may not match a particular lender or contract, and is not financial, accounting, tax or legal advice.