UK Mortgages : Capped Rate Mortgages

A mortgage increase the variable interest rate paid by the borrower cannot rise above a specified level, usually for the first few years of the loan. The interest rates can, however, be reduced if interest rates fall

Capped rate mortgage is a mixture between fixed rate and a standard variable rate mortgage. Capped rates are set so as not to exceed a maximum amount for a set period , if the base rate goes up to a level higher than the capped rate you do not pay the excess. However you can still enjoy the low interest rates if the base rate falls. You will be locked in for a minimum period in order to compensate the lender for providing the security against increasing (however you may have to pay a redemption penalty charge). Unfortunately you will be committed for a set minimum period so the lender providing the security against increasing base rates is compensated.You may also have to pay an application fee when Starting a capped rate mortgage.

A mortgage such as this, is sometimes desirable as the mortgagee may benefit from decreased interest rates, however this will not cause them to pay more than the capped rate.

You may have to pay an application fee when starting a capped rate mortgage.

Capped rate mortgage advantages :-

• You know the maximum amount you will have to pay in interest.

Capped rate mortgage disadvantages :-

• The interest rate set by the lender will probably be slightly higher than the fixed rate mortgage - you pay for the security of the cap.

Cap and collar mortgage