Capped Rate Mortgage
The Deal:
Similar to fixed rates, a capped interest rate provides an upper limit through which the lender cannot increase the interest rate. A capped rate allows you to benefit from low periods of interest, unlike fixed rates, a capped rate can fall if a lender lowers their variable interest rates below the level of the cap set.
Advantages:
- Knowing the maximum monthly cost of your loan for a set period, allowing security within your budgeting
- Giving potential for a rate reduction, unlike the fixed rate mortgage
Disadvantages:
- Generally rates for capped mortgages will be higher than fixed-rate mortgages available
Suitability:
Capped rate mortgage are suitable options in a number of circumstances the most common being those listed below:
- Individuals requiring flexibility in terms of rate decreases than fixed rates
- Larger borrowings.
- Individuals on a tight budget expecting wage increases over the first few years of the mortgage.
- First time buyers looking for security during the first few years of setting up home.