What Is a HELOC Lifetime Interest Rate Cap?

The lifetime interest rate cap represents the maximum that an interest rate, for a home equity line of credit--or HELOC--can increase over the life of the loan. The increase is usually represented as a percentage increase from the starting rate, according to Investopedia.com.

Significance

If the interest rate for a HELOC is 7 percent and the lifetime interest rate cap is 3 percent, then the rate cannot increase to more than 10 percent during the entire loan term.

Benefits

A lifetime cap helps protect borrowers from substantial interest increases. When an interest rate increases the HELOC payment will increase as well.

Considerations

When you know what the lifetime cap is you can calculate the highest amount your monthly payment will be based on any particular balance.

Features

HELOCS usually have adjustable rates, which means they fluctuate up or down depending upon the index they are tied to. One of the more common indexes is the prime rate.

References

• Investopedia: Lifetime Cap
• The Truth About Mortgage: Home Equity Line of Credit