What is a capped rate mortgage?
A capped rate mortgage is a type of standard variable rate mortgage whereby a maximum interest rate cap is placed on the mortgage. If interest rates rise your mortgage interest rate cannot rise past the maximum capped rate.
If Bank of England interest rate falls your lender might at their discretion reduce the interest rate on your mortgage.
Capped rate mortgages are usually part of an introductory offer to new borrowers as a way of enticing them on to a mortgage deal.
Advantages of capped rate mortgages?
You have a guaranteed maximum interest rate and hence monthly repayment for a set period of time.
Some lenders will give you a capped rate mortgage which acts like a tracker rate mortgage. This means it follows the bank of England base rate by a plus or minus margin but has a maximum interest cap.
Disadvantages of capped rate mortgages?
Once the capped rate period finishes you will no doubt be on a more expensive rate.
The costs of settling the mortgage and hence remortgaging will be high due to early repayment costs