Capped rate mortgages

UK Capped Mortgages

Capped-rate mortgages are a compromise between fixed rate and variable rate ones.

There is a fixed upper limit to the amount of interest that will be charged on your home loan. If the base rate falls the interest charged on it remains in line with it and will also fall.

The cap will not, however, remain for the entire life of the mortgage. It may last for 4 years or more.

They are a safe way of borrowing as they offer protection against rising interest rates. Unlike a fixed rate product, you will benefit from a fall in interest rates. You may find a product whereby a discount is offered if you pay less initially.

Rates may not be as competitive to start with as lenders want to make sure that they minimise their losses if the rate rises sharply. When the capped period is over the rate will revert to the lender's Standard Variable Rate. There will be a tie-in period to prevent you from re-mortgaging. You may also have to pay an arrangement fee.

Lenders have now introduced a cap and collar rate. The cap is the part that limits the maximum you will pay and the collar limits the minimum. This means the lender is taking a marginally less risk and so the rate will be slightly lower.

Apply for a Capped UK Mortgage

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