Capped rate mortgages are tied to the standard base rate of interest but which cannot go ever upwards and which are capped so they will not go over a pre-set level of interest and repayment. As such capped mortgages offer borrowers more security as they know their payments will never get too high and out of control, putting their home at risk. If then, you are someone who is looking for an added level of security when it comes to your mortgage – that your monthly mortgage interest repayments will never go beyond a certain level even when interest rates are very high – then a capped rate mortgage is perfect for contractors.

How Do Capped Rate Mortgages Work?

Capped rate mortgages are based on the same model as most variable rate mortgages, by which your interest payments each month will vary according to the movement of the standard variable rate of interest set by your mortgage lender or contractor mortgage broker, itself being based on the standard base rate of the Bank of England. However, the difference between standard variable rate mortgages and capped rate mortgages is that with a capped rate mortgage your interest will be capped at a certain pre-agreed amount, ensuring that the borrower never pays anything above that amount. The interest rates will fall or rise and the borrower will continue to pay the amount that their mortgage is capped at, until the rate (and amount) drops back below that level.

Capped Mortgage Rates

The capped rates that are on offer depend on each individual mortgage lender and what products they have at anytime. The capped rate that a borrower gets from their lender will frequently be at a higher level than the lender’s fixed rate or variable rate products simply because there are so many other benefits associated with a capped rate mortgage. Capped rate mortgages normally also have a well-defined minimum level to which the interest rate is allowed to fall, sometimes referred to as the ‘collar rate.’ Although capped rates do permit the borrower to save money in a lot of scenarios, any lender taking advantage of one might still potentially find themselves out of pocket if interest rates end up plummeting below this agreed collar rate.

Capped rate mortgages terms are usually set at an introductory period of between 2 and 5 years. Thereafter , the mortgage will most often revert back onto the lender’s regular variable rate for the remainder of the term of the mortgage.

The Advantages of A Capped Rate Mortgage

Capped rate mortgages will be of most benefit to people in times of high interest rates and are therefore advantageous when looking for security against the future and any potential rainy days. Get a capped rate mortgage and you will know that you cannot end up with massive mortgage payments that you were not expecting. This is a real advantage and not one that is offered by most other