Capped Rate Mortgages: Questions Answered

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Capped rate mortgages are in some ways a mixture of a variable or tracker rate mortgage and a fixed rate mortgage. They are similar to fixed rate mortgages in that they can not climb above a specific level – this is actually the cap. And they are just like variable rate mortgages for the reason that your repayments can change on a month to month basis in accordance with the Bank of England’s base rate, so any reductions in the base rate should see similar reductions in your mortgage rate. Some lenders now put a floor (or collar) on how low your mortgage rate can go but at least you’ll be protected should the base rate rises over a certain level. Your interest rate will increase with the base rate however only up to a point. Once it actually reaches the ceiling, or cap, your repayments will remain exactly the same.

The positives and negatives of capped rate mortgages
The big positive, in some ways, is getting the best of all possible worlds – fixed and variable. If interest rates go above the cap on your contract you will be protected and when rates fall you will still 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 would pay a higher rate than the equivalent fixed rate mortgage and you also could lose out if interest rates go below the “collar” set in your agreement. Mortgage companies are constantly analysing the markets  and the economy. Most likely they won’t put the cap much beneath the most they expect interest rates to reach in any case and if that was the case you would not have much to gain from the cap.

Bear in mind however that mortgage offers do change from lender to lender and from day to day so always speak with an expert mortgage adviser who can help you find the best mortgage loan to match your requirements.

No matter what the size of the mortgage you require, it is a good idea to talk to an FSA-authorised mortgage broker who can guide you through all the available options and will most likely be able to save you some money. Just make sure they are FSA approved. Alternatively visit and fill in our one minute mortgage form and an appropriate adviser will contact you.

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