CAPPED MORTGAGES
Your rate moves in line normally with the lender’s SVR. But the cap means the rate can’t rise above a certain level.
Advantages
- Certainty - your rate won’t rise above a certain level. But make sure you could afford repayments if it rises to the level of the cap.
- Cheaper - your rate will fall if the SVR comes down.
Disadvantages
- The cap tends to be set quite high;
- The rate is generally higher than other variable and fixed rates;
- Your lender can change the rate at any time up to the level of the cap.
These can be a type of mortgage with a:
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Variable interest rate
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Tracker interest rate
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Discount interest rate
Although their interest rates can go up or down with the base rate or your lender's SVR, they come with a guarantee that they will not rise above a certain amount.
For example: You take out a mortgage with a 1% discount and a cap at 4.5%. The SVR is 5% at first, so you pay 4%. After a year, the lender raises its SVR to 6%, so your new interest rate would change to 5%. However, the cap means you only pay 4.5%.
