The limits on how much interest rates can change during adjustment periods fall under which category?

The concept of limits on how much interest rates can change during adjustment periods is best described by the term "Periodic Rate Cap." This cap specifically refers to the limit imposed on how much the interest rate can increase or decrease at each adjustment period for an adjustable-rate mortgage (ARM). Essentially, the periodic rate cap protects borrowers from drastic fluctuations in their monthly payments due to changes in interest rates, providing a level of predictability and stability.

In adjustable-rate mortgages, periodic rate caps can help preserve the affordability of the loan by restricting the magnitude of rate shifts at each reset point, which can be critical for financial planning purposes. This feature allows borrowers to understand the maximum potential increase they might face when the interest rate adjusts, thus minimizing the risk associated with variable-rate loans.

While other terms, such as a "Rate Ceiling," refer to the maximum interest rate that can be applied over the life of the loan, and an "Initial Rate Cap" pertains to the limit on the first adjustment following the fixed-rate period, these do not specifically address the limits on changes during each subsequent adjustment period. Therefore, recognizing the importance of the "Periodic Rate Cap" is essential for understanding how borrowers can be safeguarded against significant interest rate volatility in their mortgage payments.