NMLS #2748687 · Company NMLS #2502308MBR
Short answer
An ARM's caps are three limits, written as three numbers. The first is how far the rate can move at the first adjustment, the second is how far it can move at each later adjustment, and the third is how far it can ever rise above the starting rate. Each number is in percentage points, not a rate. So a 2/1/5 cap means up to 2 points at the first change, 1 point at each later change, and 5 points over the life of the loan.
What are the three caps on an ARM?
- Initial adjustment cap: the most the rate can change the first time it adjusts.
- Periodic (subsequent) cap: the most it can change at each adjustment after that.
- Lifetime cap: the most it can ever rise above your starting rate.
Caps are measured in percentage points added to or taken from the rate, not as a share of the rate.
How do I read 2/1/5 or 5/1/5?
The order is always initial, periodic, lifetime. A 2/1/5 cap allows a change of up to 2 points at the first adjustment, 1 point at each later one, and 5 points in total. A 5/1/5 cap lets the first adjustment use the full lifetime limit at once, which means a bigger possible jump at the end of the fixed period. Your loan's own caps are in the note and on your Loan Estimate; these are examples of how the notation works, not an offer.
Do caps limit how far the rate can fall?
Often the initial and periodic caps work in both directions, so they limit drops as well as increases. Many ARMs also have a floor: under Fannie Mae's rules, for example, the rate can never fall below the loan's margin. Ask what the floor is on any ARM you're offered.
How do I find the highest rate and payment my ARM could reach?
You don't have to do the math. The Loan Estimate's Adjustable Interest Rate table lists the caps and the maximum possible rate, and Projected Payments shows the highest payment in each period. Make sure your budget could carry that highest payment, with New Hampshire property taxes and insurance on top. See how to read a Loan Estimate.
Are caps the same for every loan?
No. FHA and VA set their own cap rules by regulation, and conventional ARM plans vary by length of the fixed period. See FHA and VA ARMs.
Sources
- CFPB, What are rate caps with an ARM?
- CFPB, Consumer Handbook on Adjustable-Rate Mortgages
- Fannie Mae Selling Guide B2-1.4-02, Adjustable-Rate Mortgages
Checked November 10, 2026. Rules and dates change, so confirm current details before you rely on them.
General information only, not tax or legal advice. Program availability, eligibility and terms vary by lender and are subject to change and to underwriting approval. Not a commitment to lend.