Definitions:
Rate is fixed for: The period of time at the beginning of the loan term for which the interest rate is fixed. At the end of the period, the interest rate will adjust every period for the term of the loan.
Initial interest rate: The introductory interest rate at the start of the loan term that remains fixed for a specified period of time.
Index type: The specific interest rate index (e.g. LIBOR, UST, etc.) that the lender will use to determine the loan’s interest rate after the expiration of any introductory, fixed interest period.
Index rate: The published rate of a specific index at a given time, as used to compute an adjustable rate mortgage’s adjusted interest rate. The index rate is variable and dependent on economic conditions.
Index margin: The amount a lender adds to the index rate to determine the adjusted interest rate (for an adjustable rate mortgage) at the time of a rate adjustment. Index margins are fixed for the term of the loan.
Initial cap: The maximum percentage that an interest rate can change in its first adjustment period after the initial fixed period ends.
Yearly cap: The maximum percentage that an interest rate can change each year.
Lifetime cap: The maximum percentage that an interest rate can change from the initial interest rate over the term of the loan.