Capped Interest Rate Mortgage
A capped interest rate mortgage fluctuates in the same way as a
SVR mortgage, or a base rate tracker but cannot rise above an
agreed percentage. This agreed percentage is the "cap".
This means you can enjoy the low interest rates but your monthly
repayments will not rise too high when the rate rises.
As with most of the SVR variations you will be transferred back
to the SVR once the agreed Capped rate period finishes. If you
decide to leave the mortgage scheme before the agreed period
finishes you could be charged an early redemption penalty. Some
schemes also have overhanging redemption penalties. This means that
the redemption charge still applies after the agreed capped rate
period ends. This means you could be tied in to the mortgage scheme
whilst paying the lenders SVR.
You may also have to pay an application fee when beginning a
capped rate mortgage.
In essence a capped rate carries the advantages of a fixed rate
mortgage, whereby you can budget more accurately knowing the
maximum your monthly repayments will be. Unlike the fixed interest
rate you have the potential to save money when the rate falls.
However you may often find that the "cap" associated
with a capped interest rate will be slightly higher than a fixed
rate.
| 
