Capped Rate

Background
Capped Rate mortgages offer one solution to the dilemma of possible future interest rate rises by offering a ‘Cap’ or upper limit on the interest rate of the agreed mortgage. The capped rate is set for a fixed amount of time, often two years.

Interest repayment is the element of any mortgage that has the biggest impact on the monthly out-goings of the borrower. The average house buyer will try to manage their costs as much as they can. Because the UK base rate is set by the Bank of England and is subject to external factors it is the one variable that can’t be predicted in advance by borrowers. There are however mortgages that aim to take interest rate movement into consideration and the Capped Rate mortgage is one of them.

Interest Rate Rises
When home buyers borrow money to purchase the home of their dreams one of the obvious concerns that they face is the risk of unforeseen interest rate rises. It’s a very real possibility no matter how stable the economy is at any given time.

Of course the interest rate is known at the time the mortgage is taken out but what will it be six months later. What seems affordable at the time of the house purchase may become quite a bit more expensive if there is an interest rate hike. While current financial trends and recent fiscal history can give a clue to possible rate fluctuations in truth they are no more than a rough guide that can be out of date as soon as they are printed.

Interest rates are influenced by global as well as national events and they can of course fall as well as rise. A fall in the base rate can be a minor financial windfall for borrowers as long as they are not shackled to the previous higher rate. The unexpected drop in UK base rate can be a financial boost in many Uk households.