Interest Rate Cap Cost Calculator

Floating-rate loans often require an interest rate cap. This calculator estimates cap cost by notional, strike, and tenor using rule-of-thumb pricing.

Loan notional

Strike (cap rate)

Current floating rate

Tenor (years)

Volatility estimate

Estimated cap cost

$177,782

Cost per $1M notional

$17,778

Cost as % of notional

1.778%

How the math works

Cap pricing depends on notional × (strike distance + volatility × √time). Higher vol, longer tenor, lower strike = more expensive cap.

For production pricing, quote from 3+ cap providers. This calculator gives ballpark — real quotes vary 20-50% depending on market conditions and dealer inventory.

How to Use

Enter loan notional.
Enter strike (cap rate).
Enter current floating rate.
Enter tenor in years.
Enter volatility estimate.
Read estimated cap cost.

Frequently Asked Questions

What's typical cap cost?

2-year 3% strike cap on SOFR at ~5%: $20-$40k per $1M notional. 3-year 4%: $30-$60k. Cost varies wildly with vol regime; get real quote from provider (Chatham, Derivative Path).

Is cap required?

Most agency floating, CMBS floating, and bridge floating require caps at loan closing. Cap covers the life of loan or minimum 2-3 years. Cost is underwritten into transaction cost.

Does cap work?

Yes — pays counterparty when index exceeds strike. Set strike too high = cap is worthless. Too low = cap is expensive. Institutional buyers set strike at a 'real pain' threshold.