The UK capped rate mortgage - benefits and risks

The UK capped rate mortgage has a maximum interest rate for an agreed period. Interest cannot be applied to the loan higher than an agreed cap rate, but may vary beneath the cap following the normal market fluctuations. A variant of the UK capped rate mortgage is called a cap and collar mortgage, where the interest rates never exceed a maximum interest rate (the cap or ceiling ) or falls below a minimum (the collar or floor). At the end of the period the rates revert to the lenders standard variable rate.

benefits

You know the mortgage interest payment will not increase above the capped interest rate over an agreed period, which can help with budgeting.

For a capped only mortgage, if the basic interest rate falls below the capped rate, your repayments will also reduce allowing you to take advantage of favourable economic climate

risks

For a cap and collar mortgage if the basic interest rate falls below the collar, you will be paying more than necessary.

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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