A capped rate mortgage is a type of mortgage that has a cap on the interest rate payable on the balance borrowed, meaning it will not increase above the pre-agreed rate.
In some senses, capped rate mortgages are a mixture of variable rate mortgages and fixed rate ones.
In a similar manner to fixed rate mortgages, they have a mortgage interest rate cap which means they will never increase above a certain, pre-agreed point but as with variable rate mortgages the repayments can differ each month.
The reason for this is that whilst the interested rate is capped, if the Bank of England base rate (or the underlying base rate the deal tracked) was to fall then the interest rate on the mortgage will fall in tandem.
The opposite is also true, and if the base rate increased your mortgage interest rate and repayments would do also, although only by as much as the mortgage cap allows.
With the recent economic crisis, mortgage providers are beginning to put a limit on the level to which the rate can fall, but with a capped mortgage you can rest in the knowledge that regardless of how high the base rate may go you will never pay more than the pre-agreed cap.
Another possibility for individuals looking at capped rate mortgages is capped offset mortgages. This is a relatively unusual form of capped mortgage but one that allows you to merge your savings and mortgage in one place so you pay less interest overall. They aren’t the right option for everyone, but if you have a significant savings balance and a lot of will power they are worth investigating.
Capped tracker mortgages are another capped mortgage option, providing the same benefits of the interest rate cap but are essentially just tracker mortgages, following the Bank of England base rate.
It can be difficult to find the right capped mortgage provider but the key to doing so is research.
It is an important decision to make and one that shouldn’t be taken lightly, so spend time comparing your options.
Narrow it down to a short list of the best capped mortgage rates and providers.
Then check that the capped mortgages on offer meet your requirements and work out which provides access to the cheapest borrowing once fees are taken into consideration. Only once you’ve done this can you feel confident you’ve found the best capped rate mortgage deal.
