Capped rate mortgage

A capped rate mortgage puts a maximum limit on the interest rate that you have to pay. You therefore gain the security of having a 'ceiling' or upper limit to the amount that the lender can increase the interest payable on your mortgage.

This period of capped interest is for a specified period only; typically between one and five years. At the end of the specified period your mortgage will usually revert to a variable rate.

However, it is possible to find a capped rate mortgage that can last for the entire life of the loan. Although this arrangement initially sounds attractive, some capped rate mortgages also have a 'collar' or lower limit below which the interest on your loan cannot fall.

Capped rate mortgages often have an early repayment charge which varies between lenders. Usually, this only applies during the capped rate period itself; however there may be some which do have repayment charges beyond this period.

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