Preheat the oven to 350 degrees F and line a muffin tin with four paper liners.
In a medium bowl, whisk together 1 cup flour, granulated sugar, baking powder, and salt.
In another bowl, beat the softened butter with the egg, milk, and vanilla until smooth.
Pour the wet mixture into the dry ingredients and stir until just combined.
Fold in the diced apple and 1 teaspoon cinnamon.
Divide the batter evenly among the four liners.
In a small bowl, mix 1/4 cup flour, brown sugar, and 1/2 teaspoon cinnamon. Cut in the cold butter until the mixture forms coarse crumbs.
Sprinkle the streusel evenly over each cupcake.
Bake for 18 to 20 minutes until a toothpick inserted in the center comes out clean.
Cool the cupcakes for 10 minutes, then drizzle each one with caramel sauce before serving.