Capped Rate Mortgages
A capped mortgage ensures that the interest rate does
not rise above a predefined threshold, the capped rate.
The interest rate is usually the same as the lender's
standard variable rate, but will not rise above the
capped rate.
Capped rate mortgages are also available in conjunction
with some discount mortgages.
Advantages
- You can benefit from a fall in the Bank of
England's base rate that leads to a subsequent fall
in your lender's standard variable rate. At the same
time you remove the risk of the interest rate
increasing beyond a known level, allowing you to
budget more easily.
Disadvantages
- Early redemption penalties will almost certainly
apply, which may also extend beyond the end of the
discounted period. This means you will be unable to
change your mortgage during the 'early redemption
penalty period' without paying a fee, which may be up
to the value of six months mortgage repayments. So,
you may be trapped in an uncompetitive rate once the
interest rate reverts to the lender's standard
variable rate.
- You will normally have to pay an application fee
when arranging your capped mortgage.
Variable Rate
Mortgage
Fixed Rate
Mortgage
Capped Rate
Mortgage
Discounted Rate
Mortgage
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