Mortgages: Capped Rate

If you like the idea of the discounted rate mortgage, but don't want your payments to vary too much, a capped rate mortgage may be for you. Although capped rate mortgages are still linked to your mortgage lender's SVR (and so will rise and fall with the base rate) their interest rate is "capped" for a given term. So if interest rates rise above your capped level, you will benefit - and if they fall, so will your mortgage rate, so you'll win again! It's kind of like getting the security from a fixed rate mortgage, with the potential savings of a discounted rate mortgage.

Don't get too excited though, this kind of flexibility comes at a price and capped rate mortgages are usually higher than both fixed and discounted mortgages. However, they can be a good option for those that need to know their outgoings, but would still like to benefit should rates fall.

Length of Discount

Consider how long the mortgage discount is offered for (typically 2,5 or 10 years).

Mortgage Redemption Penalties

Again, like fixed rate mortgages, capped mortgages tend to have redemption penalties - should you try and switch or pay it off within the discounted period, you'll be slapped with a hefty fee. You also need to watch out for those extended tie-ins.

Compare capped-rate mortgages

Next article: Flexible

Published on November 22, 2006