A capped rate mortgage is very similar to a fixed rate mortgage, in that there is a maximum interest rate set for a given period of time, and the rate you pay is guaranteed not to go above that rate for the agreed period.
However, with a capped rate mortgage, should the Bank Rate fall during that period the rate you pay for your mortgage will 'track' the interest rate downwards, reducing your mortgage repayments.
Capped rate mortgages protect you from rises in interest rates, while allowing you to benefit from any falls in rates. So they offer a win-win situation.
Like a fixed rate, a capped rate mortgage will come with a fee.
The main drawback is that capped rates are few and far between; not many lenders offer them, and when they do they are not available for long.
The January/February 2012 issue of Your Mortgage is on sale now. In it we feature expert predictions on what will happen to house prices, interest rates and the wider economy in 2012. We also explain the latest State help for first-time buyers, weigh up the relative merits of offset mortgages, and offer handy hints and tips on making sure you have the right home insurance in place. Plus we have all the regular features and our invaluable mortgage basics section. Get your copy now for the latest news, information and help
