A payment cap is a legal limit that is attached to how much a mortgage company can charge a borrower in terms of annual payment with respect to a variable-rate mortgage that is tied to the current interest rate. The payment cap is set to protect the borrower and keep the loan within an amount that is affordable for the borrower to pay.
There are different calculations used to determine what a payment cap should be set at, and each will be based on the individual borrower's credit and available repayment ability, as well as limited by a legally set cap that cannot exceed more than one-third or one-fourth of the borrower's net pay. This amount is different from state to state.