Capped Rate Mortgages

Your payments are linked to a Variable rate which means that payments may go up or down - but the amount the rate can rise to is restricted to an upper limit (known as the 'cap' or 'ceiling') for a set period of time. There is a similar mortgage called a Cap and Collar Mortgage, where the rate you pay does not fall below a lower limit (known as the 'collar' or 'floor'). At the end of the cap (and/or collar) period you are usually charged at the Variable rate.

Advantages of Capped Rate Mortgages

These mortgages provide certainty that the Variable rate charged to your mortgage will not rise above the cap. This means you are protected from significant rises in Variable rates. This will help you to budget. In addition, you will be able to enjoy a lower rate if interest rates fall.

Disadvantages of Capped Rate Mortgages

May not be as beneficial as a fixed rate mortgage if rates rise, as the upper limit of a capped rate is often higher than a fixed rate. For example, if the Variable rate rises to the cap level and remains at this level for a significant period of time, then a fixed rate mortgage below this level may have been better value.

If you want to find out more about capped rate mortgages, please feel free to contact us or arrange a FREE mortgage consultation.