All you need to know about capped rate mortgages
One of the biggest decisions people have to make when buying a mortgage or remortgage product is deciding between fixed rate and variable interest options. However, capped rate mortgages and remortgages can offer the best of both worlds by offering a loan that acts like a variable interest rate mortgage, but is guaranteed not to go above an agreed percentage rate.
There are both advantages and disadvantages to capped rate mortgages and remortgages. The main advantage is that you have the security of knowing that your monthly repayments will not rise above a certain level but you can, at the same time, benefit if interest rates drop.
However, this luxury does come at a premium. You can generally expect to pay a higher interest rate on a capped rate mortgage or re mortgage than you would for a variable interest rate one. Also, many lenders charge an extra set up fee of as much as £200 for their capped rate mortgages and remortgages.
Bear in mind also that capped rate mortgages often carry early repayment penalties and the capped rate will usually last for about three years before returning to the lender’s standard variable rate.
Capped rate mortgages and remortgages certainly give peace of mind but it is questionable as to whether you will benefit financially from one. If the variable interest rate remains below your capped rate for most of the mortgage or remortgage, it will not be a good deal for you. However, if it rises above the capped rate you could certainly save money.
Some lenders now also offer tracker capped rate mortgages and remortgages. These will track the Bank of England base rate up to the agreed maximum interest rate. Again, these offer the security of a fixed rate mortgage while your repayments will go down if the Bank of England reduces its rates. With both standard capped rate mortgages and remortgages, and tracker capped rate mortgages and remortgages, any change by the Bank of England will be reflected in your repayments within 14 days.
Capped rate mortgages and remortgages do not suit all borrowers. However, it seems that they do not suit all lenders either and the range of products available on the market is fairly limited compared to standard mortgages and remortgages.
Because of this you may want to opt for a broker capped rate mortgage or remortgage. Try to find a quality broker who specialises, or is at least experienced, in arranging capped rate mortgages and remortgages.
A good broker should examine your personal circumstances and your wishes, contact a number of lenders who provide capped rate mortgages and find the best deal for you. Brokers can save you a lot of heartache by taking the stress of finding a mortgage or remortgage off your hands. And they should help you save money.
As with any mortgage, make sure that you keep up with repayments on your capped rate mortgage or you could have your house repossessed or even face a charging order.
