How do capped rate mortgages work?

Similar to a variable rate mortgage, your repayment amount will change every month since your payments fluctuate with the Bank of England’s base rate. Therefore, when interest rates increase you have to pay more money and when interest rates decrease you pay less. Borrowers like variable mortgages because you can save money as soon as the base rate falls. However, borrowers have to be prepared for the base rate to rise since higher repayments can easily cause financial difficulties. Mortgages with a capped rate protect you from the base rate rising to a high level.

Your capped mortgage comes with a maximum rate. Your repayments will follow the base rate changes until interest rates hit your maximum amount. This maximum amount acts as a roof that your payments can’t go over. Once interest rates go above your capped rate, you only have to pay the maximum rate you agreed to on your mortgage contract.

[ ▲ Back To Contents ]

What’s so great about capped mortgages?

You have the best of both worlds - the assurance of a fixed rate mortgage and the benefits of a variable rate mortgage. Although your repayments fluctuate, they can’t go beyond a certain amount. This can protect you from high interest rates if you are on a tighter budget but want to take out a variable rate mortgage.

[ ▲ Back To Contents ]

Are there drawbacks in getting a capped rate mortgage?

Capped mortgage rates tend to be higher than standard fixed rates and tracker mortgages. Additionally, some lenders put a “collar” on your capped rate. A “collar” is a minimum rate that your repayments can’t go under. In this case you lose some of the benefits of a variable rate mortgage, especially if interest rates drop severely.

Keep in mind that lenders try to guess how much the base rate will increase in the foreseeable future. Therefore, they may set your capped rate above what they expect the base rate to reach. In this case, you gain no benefit from having a capped rate on your mortgage. In order to determine what capped rate deals can potentially save you money, you should speak to a professional mortgage adviser who can search through thousands of deals and find you the best capped rate offer in the market.

[ ▲ Back To Contents ]

What are other mortgage rate options?

You may also want to consider fixed rates (for steady payments), variable rates (for potential savings), tracker mortgages (for a good variable rate option), and discount mortgages (for savings during the initial stages of your mortgage term).

[ ▲ Back To Contents ]

How to get a capped rate mortgage in the UK

Just fill in this short form and a mortgage adviser will contact you to answer all of your questions, give you capped rate mortgage advice, and get you on your way to buying your home.

[ ▲ Back To Contents ]

Pros: • You get the best of both fixed and variable rate mortgages. • You have a maximum amount set on your repayments. • You benefit from any drop in interest rates. Cons: • Interest rates may never go beyond your capped rate, meaning you’re paying extra for nothing. • Rates are higher than a fixed or tracker mortgage. • Lenders may set a minimum amount your repayments can’t go under.