What is pitch cap?

Pitch cap is a term used in finance to refer to the maximum interest rate that can be charged on an adjustable-rate mortgage. This cap ensures that the interest rate cannot exceed a certain threshold, providing borrowers with protection against extreme fluctuations in interest rates.

For example, if a mortgage has a pitch cap of 2%, this means that the interest rate can never increase by more than 2% in any given adjustment period, even if market rates rise significantly. This provides borrowers with predictability and stability in their monthly mortgage payments.

Pitch caps are commonly used in adjustable-rate mortgages to protect borrowers from the potential risk of rising interest rates. By setting a maximum limit on how much the interest rate can increase, lenders can mitigate some of the uncertainty associated with variable-rate loans.