A capped rate mortgage guarantees that the interest rate charged on it will not rise above a certain level for an agreed period.
This means that your mortgage payments are protected against rising interest rates for a set period and you have the peace of the mind that they will not rise above a certain amount. Although payments will not rise above an agreed amount for a specified period, you will however enjoy reductions in your monthly payments if your lender's standard variable rate (SVR) falls.
Therefore, capped rate mortgages offer the best of both worlds - security in that you know your payments can only go so high plus the benefit of reductions in your payments should the lender's rate fall.
The capped rate itself i.e. the top level of interest that you can be charged during the agreed rate is generally a little higher than you might pay on a fixed rate mortgage over the same period. Capped rate mortgages generally revert to the lender's standard variable rate at the end of the agreed 'capped' period.
Capped rate mortgages are useful if you want to set a maximum amount that you would like to pay over a set period and you feel that mortgage rates may rise higher.
Capped rate mortgages often have an early repayment charge. Normally, this only applies during the 'capped' period itself but can, depending on the lender, extend beyond this period.
Select from the list below to find out more about the different types of mortgages or call us for a no obligation chat on 0800 066 5570.
Charcol is not authorised to offer investment advice. We recommend you seek professional advice with regard to these topics if you believe they may affect you.