Caps apply to adjustable rate mortgages (ARMs). To minimize the risk of extreme fluctuations in interest rate, caps are imposed on your rate. Caps protect you by limiting the percentage by which your rate can increase. A life-of-the-loan cap limits the rate which an ARM can be adjusted over the life of the loan. For example, if your loan has a 6% interest rate and the life-of-the-loan cap is 5 percentage points, your interest rate can rise to 11% but never higher.