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Mortgages Expert Guide

Capped Rate Mortgage

Capped Rate Mortgages are supposed to offer the best of both the Fixed Rate Mortgage and the Variable Rate Mortage. Similiar to the Fixed Rate there is a maximum interest rate that you will pay for the set period but should interest rates fall you would benefit as if you had a variable mortgage.

Some mortgage lenders will add a floor to how low the interest rate fall. This is known as a 'Cap and Collar' mortgage.

Capped Rate Mortgages are typically 2,3 or 5 years.

As a general rule of thumb the longer the fixed rate period the higher the APR.Remember like all mortgages with a predetermined period you will revert to the mortgage lenders Standard Variable Rate at the end of the period

Capped Rate Mortgage Pros

  • You are protected against interest rates rises during the period you have signed up for but also benefit from falls in interest rates.
  • Your monthly payment has a ceiling for the period signed up for which helps with your budgeting

Capped Rate Mortgage Cons

  • Capped Rates are generally higher than comparitive Fixed Rate Mortgages
    The number of lenders offering capped mortgages is limited compared to other products
  • There are usually arrangement fees which can vary from a few hundred to thousands
  • There are usually redemption fees of anything up to six months interest if you decide to redeem your mortgage early. If your considering moving within the capped rate period make sure your mortgage is portable.
  • Your payments my rise significantly after your capped period if interest rates have risen

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