This is the Goverment the founders warned us about cap hat
This is the Goverment the founders warned us about cap hat“A cap is a term borrowed to define the maximum rate at which a particular asset will be sold in a transaction. When a buyer makes an offer to purchase a security, it will be the seller’s responsibility to match the offer price with the cap price so that the buyer can make an offer for purchase. If the offer is made, the seller must either match the bid or allow for a Buyer Bid. A cap price is determined by the seller and the buyer.
This is the Goverment the founders warned us about cap hatWhy do we use the cap price instead of the rate? Well, for one thing it eliminates the possibility that the buyer will back out of the deal at the last minute when the fixed interest rates kick in. It also eliminates the possibility that the seller will raise his or her asking price beyond the cap price to get more money for his/her property. So, why would you care about cap prices instead of interest rates when choosing a fixedrate or even an adjustable rate credit product? Well, cap prices are actually a better way to choose because they eliminate some risks that are inherent with interest rates.
Let us look at the cap as a way to protect yourself from rising interest rates. Suppose your fixedrate credit product has a 3% base rate but the cap on borrowing is 10%. The cap on borrowing means that every time your base level grows by just a penny (at the lowest) your rate goes up by just one percent. This is called a rising rate cap. So, you will not feel the full brunt of a rising rate, hopefully helping you avoid a nasty consequence like default.
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