Interest Rate Cap Calculator
Work out the cost of a rate cap in seconds for SOFR, SONIA, EURIBOR and 30+ indices.
Compare premiums across tenors and strikes.
Loan Details
$10.0M
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See where the market expects rates to settle over your loan term.
Compare your all-in borrowing cost: cap vs swap vs floating.
See exactly what you pay each period — forward rate, interest cost, cap payout.
Generate a presentation for your credit committee or board.
Indicative estimates only, not executable quotes.
Actual transaction prices will differ. This is not investment advice.
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FAQs
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 using live market data and calibratedvolatility surfaces.
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, a 5-year SOFR cap at a 4% strike on a $25M notional might cost between $200,000 and $500,000 (80–200 bps), but this changes daily with market conditions. Use our calculator above for a live 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.
What is an Interest Rate Cap?
An interest rate cap is a derivative contract that protects floating-rate borrowers from rising interest rates. The borrower pays an upfront premium; in return, whenever the reference rate (e.g. SOFR) exceeds the agreed strike rate, the cap seller pays the difference.
Think of it as insurance for your loan — you pay a known premium upfront in exchange for a ceiling on your borrowing cost. Unlike a swap, which locks you into a fixed rate, a cap lets you benefit when rates fall while protecting you if rates rise.
A cap is actually a series of individual options called "caplets", one for each reset period of your loan. Each caplet covers one interest period and pays out if the rate on that reset date exceeds the strike.
💡 Check out our full guide on What is an Interest Rate Cap
How Much Does an Interest Rate Cap Cost?
The cost of an interest rate cap is the upfront premium you pay, and cap pricing is driven by five factors:
Tenor
Longer protection = more caplets = higher cost
Strike rate
Lower strike = more likely to pay out = more expensive
Forward rates
If the market expects rates to be near/above the strike, the cap costs more
Volatility
Higher uncertainty about future rates increases the value of the option
Notional amount
Cost scales linearly with the loan size
Use the calculator above to compare prices across different tenors and strikes. A borrower doesn't have to hedge the full loan term — a 10-year loan might only need 3 years of rate protection if refinancing is expected.
Interest Rate Cap vs Swap
What is a SOFR Cap?
A SOFR cap is an interest rate cap where the reference rate is SOFR (Secured Overnight Financing Rate). Since the LIBOR transition, SOFR has become the standard benchmark for USD floating-rate loans. A SOFR cap protects against SOFR rising above the strike rate.
BlueGamma supports caps on SOFR, SONIA (GBP), EURIBOR (EUR), CORRA (CAD), BBSW (AUD), and 30+ other indices globally.
Disclaimer
BlueGamma Ltd provides financial data and analytics software. We are not authorised or regulated by the FCA and do not provide investment advice or arrange transactions. Interest rate caps are derivatives that involve risk, seek independent professional advice before transacting.
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