Definition
A rate cap (ceiling) is a contractual protection that limits the maximum increase of a variable rate over a set period or the total loan duration. For example, a variable loan with a +3% cap guarantees the rate will never exceed 3 percentage points above the initial rate, regardless of policy rate movements.
Canadian situation: unlike American adjustable-rate mortgages (ARMs with mandatory regulatory caps), most Canadian variable mortgages have no formal cap. However: - Fixed-payment variable mortgages (variable rate but constant payment) offer implicit protection via amortization extension. - Some B and private lenders incorporate caps in their contracts. - HELOC lines often have a contractual maximum rate.
The capped rate (`taux-cape`) is a variant where the payment is capped even if the rate is not.