Capped rate mortgages are in a lot of ways a mix of a variable or tracker rate mortgage and a fixed rate mortgage. They act like fixed rate mortgages in that they’ll not rise above a particular level – this is actually the cap. And they are generally much like variable rate mortgages for the reason that your payments can change on a monthly basis based on the Bank of England’s base rate, so any falls in the base rate should see comparable reductions in your mortgage rate. Some lenders now put a floor (or collar) on how low your mortgage rate can go but in any case you will be protected in case the base rate rises above a specific level. Your rate of interest will go up together with the base rate however only up to a certain level. Once it actually reaches the ceiling, or cap, your repayments will remain precisely the same.
The advantages and disadvantages of capped rate mortgages
The big positive, in certain ways, is getting the best of all possible worlds – fixed and variable. If interest rates go above the cap on your agreement you will be protected and when interest rates fall you will probably} gain.
You will pay a premium for having the best of both worlds. There aren’t that many of these deals around so they are not that competitively priced. Overall you will pay a higher rate when compared to the equivalent fixed rate mortgage and you also could miss out if interest rates go lower than the “collar” set in your agreement. Mortgage companies are constantly analysing the markets as well as the economy. In all likelihood they will not set the cap much below the maximum they expect rates of interest to reach in any case and if that was the case you wouldn’t have a lot to gain through having the cap.
Bear in mind nevertheless that mortgage offers do differ from lender to lender and from day to day so always speak with a professional mortgage consultant who can help you identify the best home loan for your needs.
If you are looking for a new mortgage or want to remortgage it makes sense to talk to a mortgage adviser who can talk you through all the different options. Just make sure they are FSA approved. Alternatively visit http://www.findmortgagedeals.co.uk and fill in our one minute mortgage form and an appropriate adviser will contact you.
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