Capped Rates

The Basics

Providing a combination of the security of knowing the maximum monthly cost for a set period with the opportunity to take advantage of any downward movement in the mortgage rates, this is a popular choice for many borrowers. The capped rate has a maximum rate above which your loan will not be charged, however should the lenders variable mortgage rate fall below the level of the cap then you will still benefit from this rate.

Advantages

Knowing the maximum monthly cost of your loan for a set period, allowing security within your budgeting. The potential for your rate to reduce unlike the fixed rate mortgage.

Disadvantages

Generally rates for capped mortgages will be slightly higher than those of the fixed rate mortgages available, although this is largely led by market forces and has not been the case in recent years.

Suitability

A capped rate mortgage is the most suitable option in a number of circumstances the most common being those identified below:

• Individuals wanting more flexibility in terms of rate decreases than fixed rates but still wishing to limit the amount of their maximum monthly payments.



• Larger borrowings.



• Individuals on a tight budget expecting wage increases over the first few years of the mortgage.



• First time buyers looking for security during the first few years of setting up home.