What term refers to the limit on the amount the monthly payment can increase on an adjustable-rate mortgage?

The term that refers to the limit on the amount that the monthly payment can increase on an adjustable-rate mortgage is known as a payment cap. This cap is essential because it provides borrowers with a degree of predictability and protection against significant fluctuations in their payment amounts as interest rates adjust.

When interest rates change, the payment cap ensures that increases in the monthly payment do not exceed a specified amount, thus making it easier for borrowers to budget their finances around these potentially fluctuating payments. This mechanism is particularly important for borrowers who may be concerned about rising interest rates, as it limits the impact of those changes on their overall financial obligations.

In contrast, other terms such as interest cap typically limit the rate at which interest itself can increase but do not directly address payment amounts. Similarly, a rate limit may refer to the maximum interest rate that can be charged but also does not specifically pertain to monthly payments. Adjustment limit might imply broader constraints on how frequently or by how much the interest rate can change but does not specifically relate to the cap on payment increases. Thus, payment cap is the most accurate term corresponding to the described limit on monthly payments in an adjustable-rate mortgage.