Interest Rate Cap Calculator

Each caplet in the cap is priced using an options pricing model (typically the Bachelier/Normal model for interest rates). The model takes the forward rate, strike rate, time to expiry, and implied volatility as inputs to produce each caplet's value. The cap price is the sum of all caplet values. Our calculator does this automatically, off the previous business day's close and calibrated volatility surfaces; the BlueGamma app prices live.

These are completely different concepts. A "cap rate" (capitalisation rate) is a real estate metric (NOI ÷ property value). An "interest rate cap" is a derivative that protects floating-rate borrowers from rising rates. This calculator prices interest rate caps, not real estate cap rates.

It depends on the strike rate, notional, and current market conditions. As a rough guide, in late September 2026 a 5-year SOFR cap at a 4% strike cost about 4.6% of notional upfront, around $456,000 on $10M or roughly 90 bps a year. At a 5% strike the same cap cost about 2.5% ($248,000). This changes daily with market conditions, so use our calculator above for a current estimate.

Yes. You don't have to match the cap tenor to your loan tenor. Many borrowers buy shorter-term caps (e.g. 2–3 years on a 5-year loan) if they expect to refinance or if they only want near-term protection. Our cap price grid lets you compare costs across different tenors.

The breakeven rate is the average floating rate over the cap's life at which the total cap payouts equal the upfront premium. If rates average above the breakeven, the cap was worth buying. If rates stay below, the borrower paid for insurance they didn't need — but still had certainty.

A collar combines buying a cap (ceiling on your rate) with selling a floor (minimum rate you'll pay). The floor premium offsets some or all of the cap cost, creating a "zero-cost collar" or "reduced-cost collar". The trade-off is that you give up benefit from rates falling below the floor. Coming soon to BlueGamma.

A cap costs an upfront premium but lets you benefit if rates fall. A swap has no upfront cost but locks you into a fixed rate regardless of market direction. Caps are better when you want protection but think rates might drop; swaps are better when you want certainty. Many borrowers use a blend of both.

Most caps cost somewhere between a fraction of a percent and several percent of the notional, paid upfront. Short caps with strikes above today's rates are cheapest; longer caps with strikes near the forward curve cost the most. As a guide, in late September 2026 SOFR caps on $10M cost about $49,000 (0.5%) for 1 year at a 4.5% strike, $267,000 (2.7%) for 3 years at 4% and $456,000 (4.6%) for 5 years at 4%. Enter your own loan in the calculator above for a current price.

Interest rate cap pricing starts from the forward curve for the reference rate. The cap is split into caplets, one per reset period, and each caplet is valued as an option using the forward rate, the strike, the time to that reset and the market volatility. The premium is the sum of the caplets. Banks quote that premium upfront, often with a margin on top, so it is worth comparing a bank quote with an independent mid-market price like the one this calculator shows.