Capped Rate Mortgage - Do They Have Any Benefits With Interest Rates Being So Low?

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With interest rates at an all time low it is important to understand all your mortgage options. If you are looking for a mortgage that will give you a degree of security knowing what your repayments will be each month, maybe a capped rate mortgage is for you. A capped rate mortgage is very much like a fixed rate mortgage as the repayments are set at a level known as the cap. This is useful as even if a lenders variable rate rises a capped mortgage with that lender will not rise above the cap. If the lenders variable rate falls the repayments will fall also, so the borrower benefits from any reduction but does not get penalised for any rise in the base rate.

Different types of capped rate mortgage
Capped and collared mortgages - the majority of capped mortgages have a set minimum rate that they will fall to and this is called the collar. This means that even if the base rate falls below the collar repayments will not go so low.

Tracker capped rate mortgages - these mortgages track the base rate set by the Bank of England not the lenders base rate. This is good if the Bank of England's base rate falls but not so good if it rises. It will usually take 14 days for mortgage repayments to reflect these changes, so there is little time to change mortgages if the base rate rises very steeply.

Obviously with any mortgage capped mortgages have their benefits and drawbacks. For example someone with a capped mortgage will benefit from knowing exactly how much their maximum mortgage repayments will be each month. On the other hand a capped rate mortgage is usually set with a higher rate than a fixed rate mortgage and the choices of such mortgages can be quite narrow. Capped rate mortgages also have an application fee and if you choose to switch mortgages before the end of your term you could find yourself paying a very expensive early redemption fee.

Capped rate mortgage quotes
If you feel that you would like to know more about capped mortgages or want to obtain quotes to compare them with a comparable fixed rate you can do this on one of the many mortgage comparison websites. Alternatively you can speak to one an independent mortgage advisor who will be only too happy to help you compare your mortgage options. Many independent financial advisor offer fee free mortgage advice but you should check this with the advisor prior to accepting a mortgage advice.


About the Author:
Jason Haines is a protection and mortgage advisor at godirect.co.uk, one of the UK's most trusted information site about personal finance.

Here you can use their free mortgage payment calculator tools to find the best mortgage deals and get quotes on online life insurance quote.



Article Originally Published On: http://www.articlesnatch.com


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