What is the term for the maximum rate increase allowed over the life of a loan?

The term that describes the maximum rate increase allowed over the life of a loan is known as the Life of Loan Cap. This cap is particularly relevant in adjustable-rate mortgages (ARMs), where the interest rate may change over time based on specific indices. The Life of Loan Cap sets a limit on how much the interest rate can increase throughout the duration of the loan, providing borrowers with a level of predictability regarding their long-term financial commitments.

Having this cap helps protect borrowers from potential drastic increases in their payment amounts due to rising interest rates over the years. For instance, if a borrower takes out an ARM and the Life of Loan Cap is 5%, then no matter how high the index might rise, the borrower's interest rate cannot exceed the initial interest rate plus that 5% cap.

Other terms included in the choices, such as Initial Rate Cap and Periodic Rate Cap, reference limits placed on interest rate changes at specific times or during particular intervals. While these are important in managing the interest rate during the early years of an adjustable-rate mortgage or during adjustment periods, they do not define the overall maximum that can be charged throughout the entire loan term like the Life of Loan Cap does.