Capped Rate Mortgage

A capped rate mortgage differs from both variable and fixed rate mortgages as it sort of merges the two, taking the best of both worlds. It fluctuates but is guaranteed not to rise above a pre-set rate. Your rate will rise and fall in line with the lender’s standard variable rate, but will never rise above the cap, set at the point you take the mortgage. 

As with all the different types of mortgages, a capped rate mortgage has its advantages and disadvantages. The capped rate can help you budget more effectively, and give you reassurance that you will always be able to afford your monthly payments as you will know the maximum your payment will ever be.  This peace of mind comes along with the benefit of dips in the interest rate that a variable mortgage brings.

This might sound very appealing but watch out for the drawbacks as capped rate mortgages generally have much higher interest rates than fixed rate mortgages. A capped rate mortgage will also be subject to early redemption penalties, making it harder and more expensive to switch to an alternative mortgage provider.

As with a variable rate mortgage, some capped rate mortgages also track the Bank of England base rate. This is known as a tracker capped rate mortgage and guarantees that the interest rate will fall in line with the base rate. The economic climate means that most capped rate mortgages do also have a ‘collar’ nowadays, meaning that there is also a minimum rate that they will allow the interest to fall to.  This is something to watch out for as you might never reach the really low interest rates offered with variable rate mortgages.

Another slightly varied capped rate mortgage is an offset mortgage. This is quite a rare type of mortgage which allows you to pay less interest if your savings ‘offset’ a portion of the mortgage. This is only applicable to those who have the same provider for both products, but can be worth searching for if you do have a significant sum saved up. Research really is key when it comes to capped rate mortgages, so it is worthwhile consulting Rite Financial to find the right solution for you. It is important that you consider all of your options and compare capped rate mortgages before signing up for anything.

Finding the right mortgage isn’t the only thing to consider, some mortgages providers will offer better customer service, or have more experience in the market than others. Rite Financial has excellent access to the marketplace, and provide you with high quality expert advice.