FISCUS MORTGAGES - INFORMATION AND ADVICE

Capped Mortgages

Quite simply, a maximum interest rate (“cap”) is set and the interest payable cannot rise above this level for the life of the cap, irrespective of an increase in base rates beyond this level.

Below this cap, the interest changes like a tracker mortgage; tracking movements in the Bank of England base rate. This is obviously quite a neat idea, as it ensures that you will not be disadvantaged by either a leap or fall in interest rates.

As with fixed rates, this type of insurance comes at a higher price. The interest “premium” paid – the extra percentage charged by the lender on top of the Bank’s base rate – will be higher than with a variable rate. This means that a capped mortgage is only uncompetitive when interest rates remain stable and hover a little below the cap. In this particular circumstance, a flexible mortgage may save more money.

Obviously though, a capped mortgage is chosen in an unpredictable environment and a capped mortgage ensures that extreme movements (“shocks”) in the base rate will not have too much of an impact on your monthly repayments. In this sense, both the capped and fixed rate products are good ways of ensuring that your monthly disposable income remains relatively smooth.

Some mortgage provides have both a maximum rate and a minimum rate. Such “cap and collar” mortgages are usually a little cheaper than a simple capped mortgage and provide some additional flexibility to a completely fixed-rate product. However, like a fixed rate mortgage, a considerable drop in the Bank of England’s repo rate is unlikely to save you a great deal on your monthly repayments.

A useful resource for investigating capped mortgages further, our capped mortgage tables are updated daily and allow easy comparisons of the best capped mortgage interest rates currently available in the UK.