You bought the cap. You paid the premium. Now comes the question borrowers always ask next: when does the money actually arrive? This guide walks through exactly what triggers a cap settlement, how the payment is calculated period by period, where the cash goes, and what to expect across a loan’s life — from months when the cap is dormant to months when it’s delivering real relief.
What Actually Triggers a Cap Payout
The single condition that triggers a cap settlement payment is straightforward: the reference rate must exceed the strike rate on a reset date. That’s it. There is no minimum duration for which the rate must stay elevated, no look-back requirement, and no approval process. The cap is a contractual obligation — when the trigger condition is met, the settlement is owed and must be paid.
In today’s floating-rate loan environment, that reference rate is almost always SOFR — the Secured Overnight Financing Rate — either in its Term form (1-Month or 3-Month CME Term SOFR) or its compounded-in-arrears variant. The specific rate that triggers your cap is whatever the cap confirmation document defines as the “Floating Rate Option.” It must match the rate index used in your loan agreement, or you’ll have a basis mismatch that reduces the cap’s effectiveness.
The three-part test every reset period
On each rate reset date, the cap goes through a simple three-part evaluation:
The calculation agent — typically the cap dealer — checks the official fixing of the reference rate (e.g., CME Term SOFR) published for that reset date. This is not an estimate; it’s the official published figure from the designated source named in the confirmation.
The calculation agent compares the observed reference rate to the cap’s strike rate. If the reference rate is above the strike, the cap is “in the money” for that period and a settlement is owed. If the reference rate is at or below the strike, no payment is made.
If in the money, the settlement amount is calculated using the formula: Notional × (Reference Rate − Strike) × Accrual Fraction. A settlement notice is issued, and the payment is wired on the settlement date — typically 2 business days after the calculation date.
💡 Each reset period is independent. A cap that was dormant for 14 straight months can start paying in month 15 if SOFR rises above the strike. And a cap that was paying every month can go dormant again if SOFR falls back below the strike. The cap’s full term remains in force either way.
Before finalising your strike rate, use the free calculator to see how premium cost changes as you move the strike up or down. The tool gives you an instant benchmark for market-rate pricing.
Try the Free Cap Calculator →How the Settlement Amount Is Calculated
The formula that produces every cap settlement payment is one of the more elegant things in CRE finance. It has exactly three inputs, and every term has a direct economic meaning. There is nothing hidden and nothing discretionary — both parties can independently verify the result.
Settlement = Notional Amount × Max(SOFR − Strike, 0) × Accrual Fraction
Where:
Notional Amount = The loan balance the cap is written on
SOFR = The reference rate on the reset date (e.g., 1M Term SOFR)
Strike = The cap's strike rate (e.g., 5.00%)
Max(SOFR−Strike,0) = The excess of SOFR over the strike (zero if SOFR ≤ Strike)
Accrual Fraction = Days in the period ÷ Day count basis (typically 30/360 or Act/360)
Breaking down each component
Notional Amount
This is the balance the cap is protecting. It usually matches the original loan amount, though some structures use a declining notional that follows the amortising balance. A larger notional produces a larger settlement for the same rate differential.
The Rate Differential
This is the economic “hurt” the cap is offsetting — the gap between where rates actually landed and where you needed them to stay. Even a small differential (25–50 bps) applied to a large notional over a full year compounds into a meaningful number.
Accrual Fraction
This converts the annual rate differential into a period-specific dollar amount. A monthly cap on an Act/360 day count basis uses approximately 30/360 = 0.0833. A quarterly cap uses 90/360 = 0.25. Longer periods produce larger individual settlements.
Three worked examples at different SOFR levels
The loan below is the same in all three cases: $15 million notional, 5.00% strike rate, monthly resets, 30/360 day count. Only SOFR changes.
| SOFR on Reset Date | Rate Differential (SOFR − Strike) | Calculation | Monthly Settlement | Status |
|---|---|---|---|---|
| 4.25% | 0.00% (below strike) | $15M × 0 × 0.0833 | $0 — No payment | Dormant |
| 5.00% | 0.00% (at strike) | $15M × 0 × 0.0833 | $0 — No payment | Dormant |
| 5.50% | 0.50% | $15M × 0.0050 × 0.0833 | $6,250 | Paying |
| 6.00% | 1.00% | $15M × 0.0100 × 0.0833 | $12,500 | Paying |
| 6.75% | 1.75% | $15M × 0.0175 × 0.0833 | $21,875 | Paying |
| 7.50% | 2.50% | $15M × 0.0250 × 0.0833 | $31,250 | Paying |
Notice that the settlement grows linearly with SOFR. There is no cap on the settlement amount — the higher SOFR goes above the strike, the larger the payment. This is exactly what a borrower needs: the protection grows precisely as the interest rate problem grows.
Annual settlement projection
Multiply the monthly figure by 12 (assuming SOFR stays constant) to see the full annual value. At SOFR 6.75% on a $15 million loan with a 5.00% strike, the borrower receives approximately $262,500 in settlement payments over one year. If the original cap premium was, say, $180,000, the cap has already delivered a positive net return — in addition to protecting covenant ratios and providing certainty for budgeting purposes.
⚠ Day count matters more than most borrowers realise. The difference between Act/360 and 30/360 creates a small but real variance in settlement amounts. Always check which day count basis your loan uses and ensure the cap confirmation matches it exactly. A mismatch shifts a small amount of risk back onto you with each settlement.
Calculation Dates vs. Settlement Dates
One of the most common sources of confusion for first-time cap buyers is the gap between when the cap “triggers” and when the money actually arrives. These are two different events on two different dates, and understanding the distinction prevents some very uncomfortable surprises — especially around loan payment timing.
The calculation date
The calculation date (also called the rate reset date or fixing date) is the date on which the reference rate is officially observed and the settlement amount is determined. On a monthly cap with resets on the first business day of each month, the calculation date is that first business day. The calculation agent publishes the fixing, performs the arithmetic, and issues a settlement notice to both the cap buyer (or their lender, if assigned) and the cap seller.
The settlement date
Settlement dates are almost universally T+2 — two business days after the calculation date. This is the standard derivatives settlement convention and matches how SOFR-based instruments settle across the market. The cap dealer wires the settlement amount on this date, and the receiving party (usually the lender, under an assignment) applies it to the borrower’s interest payment.
| Event | What Happens | Typical Timing |
|---|---|---|
| Rate Reset Date | SOFR is observed from official source (e.g., CME Term SOFR page) | 1st business day of each month |
| Calculation Date | Settlement amount computed: Notional × (SOFR − Strike) × Accrual Fraction | Same day as reset (or T+0) |
| Settlement Notice | Dealer issues written notice of settlement amount to counterparty | T+0 to T+1 |
| Settlement Date | Cash wired from dealer to lender (or borrower if no assignment) | T+2 business days |
| Loan Interest Payment | Servicer applies settlement credit against borrower’s interest charge | Per loan payment schedule |
The in-arrears vs. in-advance distinction
Some caps — particularly those tied to compounded-in-arrears SOFR rather than Term SOFR — observe the reference rate at the end of the accrual period rather than the beginning. In-arrears caps are more technically complex because the final settlement amount isn’t known until the period ends, which can create timing mismatches with the corresponding loan payment. If your loan uses compounded SOFR in arrears, make sure the cap’s settlement timing and lookback conventions align with the loan’s payment schedule. Most lenders prefer Term SOFR for cap-covered loans precisely to avoid this complexity.
💡 Practical tip: Ask your lender on day one: “Does the cap settlement arrive before or after my loan payment is due?” On most well-structured deals, settlements arrive in time to offset the same-period interest payment. On poorly timed structures, you may pay the full interest first and receive the credit the following month. Both are mathematically equivalent over the life of the loan, but cash flow timing matters for short-term planning.
Where the Settlement Payment Actually Goes
This is where many borrowers are caught off guard. If you bought the cap for a lender-required bridge loan, the settlement payment almost certainly does not land in your bank account. It goes directly to the lender. Understanding this distinction is critical for cash flow planning.
The two possible payment paths
Path A — Assigned Cap (Most Common)
Your lender required you to buy the cap and assign it as collateral. The cap confirmation and assignment agreement instruct the dealer to wire all settlement payments to a lender-designated lockbox or restricted account. The lender then credits your loan’s interest payment by the settlement amount. Your net interest expense for the period is reduced — but you never see the cash. It’s applied behind the scenes.
Path B — Unassigned Cap (Rare)
If you bought a cap voluntarily, without lender assignment (for example, to hedge a preferred equity structure or an unencumbered asset), the settlement payments are wired directly to you. You receive cash from the dealer and apply it however you choose — to cover higher interest payments on the underlying loan, fund operations, or hold in reserve. This structure is uncommon in traditional CRE lending.
The assigned cap payment flow — step by step
On the reset date, observed SOFR is above your cap’s strike. The cap is in the money.
The cap dealer computes the settlement amount and issues a notice. Both the lender and the borrower receive a copy.
Settlement is wired to the lender’s designated account — not the borrower’s account — per the assignment agreement.
The servicer credits the settlement against the period’s interest charge. Borrower’s net payment is reduced.
The monthly loan statement shows gross interest accrued and the cap settlement credit separately. Net amount due is reduced.
🚩 Common confusion: Borrowers who expect a settlement wire in their business account often assume the cap isn’t working when they don’t see one. Under an assignment, the cap is working — the money just moves from dealer to lender rather than dealer to borrower. Check your monthly loan statement for a line item labelled “cap settlement credit,” “rate protection credit,” or similar. If SOFR is above your strike and you see no such credit, contact your servicer immediately.
Run a quick estimate with the free calculator to understand the premium cost, and review the related article on cap assignment agreements to know exactly what you’ll be signing at closing.
Use the Rate Cap Calculator →When the Cap Is Dormant — and Why That’s Fine
A cap that isn’t paying is not a failed investment. It’s a cap doing exactly what it was designed to do: it is holding in reserve, ready to activate the moment rates move past your threshold. The analogy to insurance is accurate here — your homeowner’s policy not paying out last year doesn’t mean you wasted the premium. It means your house didn’t flood.
That said, it’s worth understanding the mechanics of a dormant cap period so you know what to expect on your loan statements and in your cash flow model.
What “out of the money” means in practice
When SOFR is below your strike, every cap settlement calculation produces the same result: Max(SOFR − Strike, 0) = 0. The accrual fraction doesn’t matter. The notional doesn’t matter. Zero times anything is zero. No wire leaves the dealer’s account. Your interest payment for that period is simply SOFR + spread × notional × accrual fraction — the same it would be without a cap.
How often are caps dormant vs. paying?
This depends entirely on where SOFR sits relative to your strike across the loan term. A cap purchased in a low-rate environment with a strike 200 basis points above current SOFR may stay dormant for 18 months before the rate environment eventually catches up. A cap purchased when SOFR is already close to the strike will begin paying almost immediately if rates continue rising.
The table below shows a stylised 24-month history for a $12 million loan with a 5.00% strike, illustrating which months the cap pays and which it doesn’t:
| Month | SOFR (Illustrative) | In the Money? | Monthly Settlement |
|---|---|---|---|
| M1 | 3.80% | No | $0 |
| M2 | 4.05% | No | $0 |
| M3 | 4.30% | No | $0 |
| M4 | 4.55% | No | $0 |
| M5 | 4.75% | No | $0 |
| M6 | 5.00% | No (at strike) | $0 |
| M7 | 5.30% | Yes | $3,000 |
| M8 | 5.65% | Yes | $6,500 |
| M9 | 6.10% | Yes | $11,000 |
| M10 | 6.50% | Yes | $15,000 |
| M11 | 6.80% | Yes | $18,000 |
| M12 | 6.75% | Yes | $17,500 |
| M13–M18 | 6.40%–6.90% | Yes (all) | $14,400–$19,000/mo |
| M19 | 5.20% | Yes | $2,000 |
| M20 | 4.90% | No | $0 |
| M21–M24 | 4.60%–4.85% | No (all) | $0 |
The cap was dormant for months 1–6 and months 20–24. It was actively paying months 7–19. Total settlements across the paying months in this illustration: approximately $188,000. The cap bought protection exactly when rates were most elevated — which is precisely its purpose.
💡 The value of a dormant cap isn’t zero. Even in periods when SOFR is below the strike, the cap has optionality value — it remains in force and ready to activate. If rates spike again in month 23, the cap is still there. Thinking of the premium as “wasted” during dormant months misframes what the cap is doing.
How the Notional Amount Affects Every Settlement
The notional amount is one of the two multipliers in the settlement formula, and it has an outsized effect on how meaningful each payout is. Two borrowers with identical SOFR levels and identical strikes will receive very different dollar amounts if their notional balances differ. This section explains how different notional structures — flat, declining, and step-up — shape the settlement stream over time.
Flat (constant) notional — the simplest structure
Most bridge and construction loans use a flat notional that matches the original loan commitment amount throughout the cap’s term. This is the easiest structure to model and the easiest to verify. Every settlement calculation uses the same starting number. The settlement amount varies only because SOFR varies.
Amortising (declining) notional — for paying-down loans
Some fully amortising commercial loans — including certain Fannie Mae and Freddie Mac floating-rate products — require a cap with a declining notional schedule that mirrors the expected amortisation. The cap confirmation includes a notional schedule table, listing the notional for each period. A cap that starts at $20 million and amortises to $18.5 million by month 24 will produce smaller settlements in later months even if SOFR is in the same place, because the notional is lower.
Step-up notional — for construction draws
Construction loans often use a step-up notional structure that increases as construction draws are funded. A $25 million construction loan may start with only $5 million drawn at closing. The cap’s notional rises in steps — to $10M at month 6, $17M at month 12, $22M at month 18, $25M at month 24 — matching the expected draw schedule. In early months, even a large SOFR excess produces only a modest settlement because the notional is small. By the end of construction when the notional is at its maximum, settlements grow significantly.
| Notional Structure | Notional at Month 6 | Notional at Month 24 | Settlement at 6.50% SOFR, 5.00% Strike (Month 24) | Best Fit |
|---|---|---|---|---|
| Flat | $15,000,000 | $15,000,000 | $18,750 | Bridge loans, I/O period loans |
| Amortising | $14,400,000 | $13,100,000 | $16,375 | Permanent floating-rate agency debt |
| Step-Up | $6,000,000 | $15,000,000 | $18,750 | Construction loans, phased draws |
The step-up structure is worth noting: it keeps early premiums low (smaller notional = cheaper cap at closing) while building to full protection as the loan matures and the exposure grows. For construction deals, this is typically the most cost-efficient structure. Before making a decision, run the numbers with the Waldev interest rate cap calculator to see how different notional profiles affect your estimated premium.
The mismatch risk
A notional schedule that diverges from your actual loan balance creates over-hedging or under-hedging. If your loan draws faster than the step-up schedule assumed, you’ll have more exposure than the cap covers. If the loan pays down faster than the amortisation schedule assumed, you’ll be paying premium on a notional that’s larger than needed. Match the cap’s notional schedule to your actual expected loan balance — and include a buffer for flexibility if your draw timeline is uncertain.
Real Borrower Scenarios: When the Cap Pays and When It Doesn’t
The following four scenarios are illustrative examples built to show different payout patterns across different deal types. The numbers are constructed to be realistic without representing any specific transaction. In each case, the underlying question is the same: when did the cap actually pay, and by how much?
At closing, SOFR was 85 basis points below the strike. The cap was dormant for the first 8 months while rates climbed gradually. By month 9, SOFR crossed 5.25% and the cap began paying. SOFR peaked near 7.00% in months 14–20, generating monthly settlements between $22,500 and $52,500. Rates fell back below the strike in month 27 and stayed there for the final 9 months of the loan.
Total settlements across 36-month term: Approximately $510,000. Cap premium at closing: $212,000. Net hedge benefit: +$298,000. The cap activated at exactly the right time — during the renovation period when the property’s income was suppressed and the higher interest cost would have been most damaging.
The lesson here: a cap purchased at a modest premium relative to the loan size can generate settlements far exceeding its cost when a rate cycle catches the loan mid-term. The uncertainty at purchase is not whether the cap will work — it’s whether rates will cooperate.
The borrower was required to purchase a cap with a relatively high strike — 6.50% — as a condition of an agency floating-rate loan. SOFR was at 5.10% at closing and never exceeded 6.00% during the 24-month term. Every settlement calculation produced a result of $0. The cap never paid.
Total settlements: $0. Cap premium paid: $88,000. The borrower paid $88,000 for protection that was never used. Does that make the cap a poor decision? Not necessarily. At the time of purchase, there was a real probability that rates would continue rising and breach the 6.50% threshold. The protection was there. Rates simply didn’t cooperate with the scenario in which the cap would have paid.
The lesson: a cap that never pays is not evidence it was the wrong purchase. It’s evidence you got lucky on rates — or that the lender set the strike high enough that the protection was narrow. Before closing, run the numbers with the interest rate cap calculator to understand the probability-weighted value of different strike levels.
The borrower used a step-up notional structure, starting at $4M drawn at closing and rising to the full $30M commitment by month 20. SOFR crossed 5.00% in month 3 and stayed above the strike for most of the remaining loan term. However, because the notional was still small in months 3–12, early settlements were modest: $2,000–$8,000 per month. By months 18–28, with notional at $25M–$30M and SOFR at 5.60%–6.00%, monthly settlements climbed to $25,000–$37,500.
Total settlements: approximately $380,000. The step-up structure meant the cap underperformed in early months relative to what a flat $30M cap would have delivered — but the flat cap would have cost significantly more at closing. The net result was a cheaper cap that still delivered substantial protection during the heaviest-exposure period of the construction phase.
The borrower purchased a 3-year cap but refinanced into fixed-rate agency debt at month 22, repaying the bridge loan 14 months early. At the time of refinance, SOFR was 5.80% — 80 bps above the strike. The cap had 14 months of remaining term and was in the money. The lender released the cap assignment as part of the payoff process.
With 14 months remaining and SOFR 80 bps above strike, the cap had positive market value — approximately $65,000–$85,000 depending on the forward curve and implied volatility at the time. The borrower requested a termination bid from the original dealer, received $72,000, and netted a cash payment at payoff.
The lesson: when you refinance or sell a property with a cap that still has remaining term and SOFR above the strike, you may be leaving money on the table if you simply let the cap expire. Always request a termination bid as part of the payoff process. The guide explains the concept, but the calculator helps you estimate the current cap value before you call the dealer.
Cap Payout Over a Full 36-Month Loan Life
To make the settlement mechanics completely concrete, here is a detailed month-by-month payout timeline for a single $16 million bridge loan. This illustrative example uses a 5.00% strike, Act/360 day count (using a simplified 30/360 for clarity), and monthly resets. The SOFR path is constructed to show a realistic rate cycle — rising, peaking, and partially retreating.
Settlement: $0. SOFR is 75 bps below strike. Interest charge for the period is based purely on 4.25% + spread. No cap credit appears on loan statement. Borrower pays full floating-rate interest.
Settlement: $0. SOFR has reached the strike exactly. Max(5.00% − 5.00%, 0) = 0. No payment triggered. The cap sits at the threshold — any further rate movement starts generating settlements.
Settlement: $16M × 0.35% × 0.0833 = $4,667. The cap generates its first credit. The loan statement shows gross interest at 5.35% + spread, with a $4,667 cap settlement credit offsetting it. Net effective rate begins to track at 5.00% + spread.
Settlement: $16M × 1.20% × 0.0833 = $16,000. SOFR has risen significantly above the strike. The cap is delivering meaningful monthly relief. Cumulative settlements months 7–12: approximately $52,000.
Settlement: $16M × 1.80% × 0.0833 = $24,000. This is near the peak settlement level. The cap is offsetting nearly $24,000 per month in excess interest. Cumulative settlements months 7–18: approximately $230,000.
Settlement: $16M × 0.60% × 0.0833 = $8,000. Rates are retreating but still above the strike. Cap continues to provide protection. Cumulative settlements months 7–24: approximately $330,000.
Settlement: $0. SOFR falls below 5.00%. The cap deactivates. Interest is paid at the lower floating rate. No credit appears on the loan statement. The cap has generated its last payout and will remain dormant if rates stay below the strike.
The cap reaches its contractual termination date. No residual value — SOFR is well below the strike and the cap is out of the money. Loan is either refinanced or the cap naturally expires. Total settlements across 36 months: approximately $340,000. Premium paid at closing: approximately $175,000. Net benefit: +$165,000.
💡 Takeaway from the lifecycle: The cap was dormant for the first 6 months and last 8 months of the loan. It generated all of its value in a 21-month window when SOFR was above the strike. This is the normal pattern — caps tend to produce concentrated benefits during elevated rate periods, with long dormant bookends when rates are lower.
Common Misunderstandings About Cap Payouts
After working through the mechanics, it’s worth addressing the questions and misconceptions that appear most frequently among borrowers encountering cap settlements for the first time.
❌ “I didn’t see any money, so the cap didn’t work”
Under an assignment, the money goes from the dealer to the lender — not to your account. If SOFR was above your strike, the cap worked. Check your loan statement for a settlement credit line item, not your bank statement.
❌ “The cap pays me back my premium if rates spike”
Settlements are calculated only on the rate differential above the strike. They have no relationship to what you paid for the cap. A cap can generate settlements far exceeding the premium, or generate nothing, regardless of what you paid upfront.
❌ “The cap is only valuable when it’s paying”
A dormant cap has optionality value — it remains in force and will activate if rates rise. Terminating or allowing a cap to lapse during dormant periods to “cut losses” destroys this forward value.
❌ “The settlement fully offsets my interest payment”
The settlement offsets only the portion of SOFR above the strike. You still pay the spread and the strike-rate portion of SOFR. The cap bounds your interest exposure, it doesn’t eliminate it.
❌ “All my caplets pay on the same date”
Each caplet has its own calculation date and settlement date. In a monthly cap, you receive 12 separate settlements per year — one per month — each evaluated independently. Not all months trigger a payment.
❌ “If I sell the property, the cap disappears”
The cap is a standalone derivative instrument. If the loan is repaid when you sell, the cap is released from the assignment. If it still has term and positive value, you can sell it or assign it to the buyer’s new lender. It doesn’t automatically disappear.
If you want to understand what your cap settlement would look like at various SOFR levels, or estimate your cap’s remaining market value before an early payoff, start with the free tool and then consult your derivatives advisor for current market pricing.
Estimate Your Cap →Frequently Asked Questions
When does an interest rate cap pay out?
An interest rate cap pays out whenever the reference rate (typically SOFR) exceeds the cap’s strike rate on a rate reset date. The settlement amount is calculated as: Notional × (Reference Rate − Strike) × Accrual Fraction. If SOFR is at or below the strike, the cap is dormant and no payment is made for that period. Each reset period is evaluated independently.
How is the cap settlement amount calculated?
Settlement = Notional Amount × Max(SOFR − Strike, 0) × Accrual Fraction. For a monthly cap on a $10 million loan with a 5.00% strike and SOFR at 6.25%, the monthly settlement is approximately $10,416: $10,000,000 × (0.0625 − 0.0500) × (30/360). The calculation is performed by the cap dealer (the calculation agent) and a settlement notice is issued to both parties.
Does the cap pay out on every reset date?
No. The cap only pays when the reference rate exceeds the strike. If SOFR is below the strike on a given reset date, the cap is “out of the money” for that period and no payment is made. The cap can be dormant for months or years and then begin paying when rates eventually rise above the strike. This on-off pattern is normal and expected.
Who receives the cap settlement payment — the borrower or the lender?
It depends on whether the cap has been assigned. When a lender requires a cap, the borrower typically assigns it to the lender as additional collateral. Settlement payments are wired directly to the lender, who applies them as a credit against the borrower’s interest payment. The borrower’s net interest expense is reduced — but the money flows dealer → lender rather than dealer → borrower directly.
What is the difference between a calculation date and a settlement date?
The calculation date is when the reference rate is observed and the settlement amount is computed. The settlement date is 2 business days later, when the actual cash is wired. On a monthly cap resetting on the first business day of the month, the rate is fixed on that date, and the settlement cash arrives by the third business day. This T+2 convention is standard across derivatives markets.
Can a cap pay out even after SOFR has started declining?
Yes — the cap pays whenever SOFR exceeds the strike at the time of each individual reset, regardless of the direction of travel. If SOFR peaked at 7.00% and has declined to 5.50% but is still above a 5.00% strike, the cap continues to pay. It only stops generating settlements when SOFR falls below the strike on a reset date.
What happens to an in-the-money cap when I refinance or sell?
When the loan is repaid, the cap assignment is released by the lender. If the cap has remaining term and SOFR is above the strike, the cap has positive market value. The borrower can request a termination bid from the dealer and receive cash equal to the remaining expected settlement value, discounted to present value. Always request this bid as part of the payoff process — it may be worth tens of thousands of dollars.
Does a declining notional schedule affect how much the cap pays?
Yes. If the cap uses a declining or amortising notional that mirrors loan paydown, each settlement is calculated on the lower balance in each period. A $20M cap that amortises to $16M by year two will produce smaller settlements in year two even if SOFR remains in the same place, because the notional has decreased. Always verify that the cap’s notional schedule matches your loan’s actual expected balance path.
Ready to Estimate Your Cap’s Cost?
Understanding when a cap pays — and how much it pays — is the first step. The second step is knowing whether the premium makes sense for your specific loan. The free Waldev interest rate cap calculator lets you enter your loan amount, strike rate, term, and current SOFR to get an instant benchmark estimate of cap premium cost. It’s the fastest way to pressure-test a dealer quote or prepare for a lender conversation before you’re under the gun at closing.
Enter your loan details and get an estimated cap premium in seconds. No signup required.
Calculate My Cap Premium →Related guides in this series
What Is an Interest Rate Cap?
The beginner’s guide to how caps work, who needs them, and how to read a settlement payment. Start here if you’re new to rate caps.
Cap Assignment Agreements Explained
Understand why the settlement goes to your lender and not your bank account — and what the assignment agreement actually says.
How Interest Rate Caps Are Priced
The mechanics behind the Black-76 model, implied volatility, and why premiums change from week to week.
DSCR and Interest Rate Caps
How lender-mandated cap strikes are derived from DSCR stress tests — and how the payout protects covenant compliance.
Disclaimer: This article is for general educational purposes only and does not constitute financial, legal, or investment advice. Interest rate cap mechanics, settlement calculations, and payment flow vary by confirmation terms, lender requirements, and market convention. All numerical examples are illustrative and do not represent actual transaction outcomes. Consult qualified legal, financial, and derivatives professionals before purchasing or relying on an interest rate cap.
