If you disclose a "ceiling rate" on an adjustable rate loan, are you required to base repayment ability on the ceiling rate or just on the initial fully indexed rate at closing?
Currently we our ARMS loan can adjust daily, however we do not adjust the payment amount. Increase or decrease in rate adjusts the amount due at maturity but negative amortization is prohibited.

It would be based on the highest payment shown in the TIL disclosure. Your caps must be awfully small to prohibit negative amortization. I have never heard of such an ARM.