A capped mortgage is a type of variable rate mortgage in which the interest rate can change but cannot rise above a set level.
With a capped mortgage you can enjoy security in knowing that your repayments won't rise above a certain point, whilst retaining the chance to benefit if rates should fall. Below the capped level, your mortgage interest rates might vary in line with either the standard variable rate (SVR) of your mortgage provider, or the Bank of England base rate.
Cap and collar mortgages
Capped mortgages sometimes also have a minimum level to which rates can fall, known as the 'collar'. When a mortgage has both a cap and collar it is often referred to as a capped and collared mortgage. You should be aware of any collar on your rates if you are thinking about taking out a capped mortgage.
Could a capped mortgage be right for you?
Having a maximum limit on your mortgage rate may help you to plan your finances each month, and give you peace of mind. However, you could be subject to financial penalties if you decide to opt out of your capped mortgage before the term ends. Make sure you are aware of any overpayment charges and exit fees before you take out a mortgage.
To find out whether a capped mortgage could be right for you, speak to a mortgage adviser.