Capped rate mortgage

Capped rate mortgages 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. The period of capped interest is for a specified period only; typically between one and five years.

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.

• Just as a fixed mortgage, capped mortgages may also have redemption penalties; should you try to switch or pay the mortgage off within the discounted period, you may incur penalty charges. At the end of your capped period, you will normally revert to the standard variable rate. Prior to the expiration of your capped mortgage period, you might want to consider reviewing your ongoing product options.
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