Capped
Interest Rate Mortgage
A capped interest rate mortgage fluctuates in the same way as a
SVR mortgage, or a base rate tracker but cannot rise above an agreed
percentage. This agreed percentage is the "cap". This
means you can enjoy the low interest rates but your monthly repayments
will not rise too high when the BOE's base rate rises.
As with most of the SVR variations you will be transferred back
to the SVR once the agreed Capped rate period finishes. If you decide
to leave the mortgage scheme before the agreed period finishes you
will be charged an early redemption penalty. Some schemes also have
overhanging redemption penalties. This means that the redemption
charge still applies after the agreed capped rate period ends. This
means you could be tied in to the mortgage scheme whilst paying
the lenders SVR.
You may also have to pay an application fee when beginning a capped
rate mortgage.
In essence a capped rate carries the advantages of a fixed rate
mortgage, whereby you can budget more accurately knowing the maximum
your monthly repayments will be. Unlike the fixed interest rate
you have the potential to save money when the BOE's base rate falls.
However you may often find that the "cap" associated
with a capped interest rate will be slightly higher than a fixed
rate.
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