Thank you for your enquiry for a Capped Rate Mortgage
Each person has unique and individual circumstances and requirements, and our recommendation for your Capped Rate Mortgage will reflect your own personal needs.
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A Capped Rate Mortgage is where the maximum interest rate that you will ever pay is capped at a certain amount. In this situation one knows the maximum amount of interest that they will ever pay on their mortgage loan.
There are advantages to this capped mortgage as well as disadvantages. There indeed is a limit or a “cap” on the amount of money one will be charged in interest. This is ideal for those on a fixed income and wish to stay within the established parameters of the mortgage cap. The mortgage usually starts at the lender’s “Standard Variable Rate”. It can fluctuate from there within an agreed upon amount of interest and but it cannot rise above a specified and agreed upon amount. Even if The Bank of England’s rates increase to an interest rate higher than what is agreed upon, your capped rate remains at the agreed upon cap without raising further.
This may sound like a great deal but there are a few things to know on the downside of Capped Rate Mortgages. If the interest falls extremely low, your interest rate is also capped at a low level. This is called the “collar” of the interest rate. The bank agrees with the mortgage buyer on a certain amount of interest to be the collar and this amount is never brought down despite the fact that The Bank Of England’s rate may now be at a much lower rate of interest.
The other downside to a Capped Rate Mortgage is the rate of interest at which you start at is not a premium rate. The rate is usually moderate to high when starting off your account with the capped rate system.
This is why some people prefer to go with a variable rate of interest term. The rates can fluctuate but you will get the low end of the scale when the interest rates are at a low as opposed to getting a collard rate when you could be saving money.
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