Capped Rate Mortgages

Capped rate mortgages are a combination of both fixed rate mortgages and a variable rate mortgage and can offer the best of both worlds.

What are capped rate mortgages?

As its name suggests capped rate mortgages are capped. What happens is when you first take out a capped rate mortgage you are offered two interest rates, the one you start with and the one that your mortgage is capped at. The interest you begin with is based on the standard variable interest rate the lender charges which itself is based on the Bank of Englandís base lending rate which is decided at monthly meetings of the Bankís monetary policy committee.

Benefits to Capped Rate Mortgages.

If there are fluctuations in the world economy causing your monthly interest rate to rise then it can only go as high as the rate it was capped at when you first took out your mortgage. It can go no higher than that and this is a great advantage compared with someone who has a variable rate mortgage where the monthly repayments will rise as high as the interest rates.

Another advantage is that should the monthly interest rate go lower than the rate you started with, the rate on your mortgage will also go down as will your monthly repayments.

Also, as with a fixed rate mortgage, it is easier to plan your budget as you will know the limit of the monthly payments you may have to make.

Disadvantages to Capped Rate Mortgages

The main disadvantage of capped rate mortgages is that the interest rate you start with is higher than it would be if you had taken out either a fixed rate mortgage or a variable rate mortgage. Also there are not as many capped rate mortgages available.

As with all types of mortgages there are both pros and cons though with the capped rate mortgage it would seem you have the best of all worlds as your monthly repayments will decrease if interest rates go down, but if rates spiral upwards then the rate you pay can only go so far before itís capped. However your starting interest is likely to be higher than it is for other mortgage types.

If you would like some more information about what mortgage type would suit you best then fill out the online form and you will then be able to discuss your needs with one of our expert mortgage brokers.


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