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A Capped Rate Mortgage puts a ceiling on the rate for a period of time. This means that the payments cannot go above the rate set during that time. It can of course change if the rates go down.
Advantages:
- Gives you a guaranteed rate which your repayments cannot exceed
- If interest rates fall, your repayments will reduce with them
Disadvantages:
- Usually the Capped Rate is higher than a Fixed Rate because repayments can fall with interest rates
- Usually have to pay application and /or arrangement fees
- If the loan is redeemed during and in some cases a short while after, a penalty fee of several months repayments is payable
