Advantages to Capped Rate
In short the main advantage offered by a Capped Rate mortgage is the comfort of knowing exactly what your maximum monthly interest expenditure will be for the span of the arrangement. But there is another feature of a Capped Rate mortgage that sets it apart particularly from a Fixed Rate mortgage in that the cap is only an upper limit and if the variable rate drops instead of rising then the new lower rate is used to calculate the monthly interest repayment. Thatís good news if you are not tied to the higher fixed rate and you can enjoy lower payments and extra cash in your pocket while the rates are low.
Capped Rate Protection
The Capped Rate mortgage offers protection against any rise in the rate above your capped figure but also allows you to take advantage of a drop in the rate that can mean having to pay less money per month for your mortgage repayments. Just like a Capped Rate mortgage a Fixed Rate mortgage will also give you certainty on monthly repayments but doesnít adjust to a lower rate and can result in borrowers paying more than the prevailing Bank of England UK base rate if it drops. A Variable Rate mortgage will move downwards with the interest rate but has no upper limit if that rate suddenly climbs and therefore offers no cushion against rate rises.
Borrowers who need to know exactly how much they are going to be paying each month can use a Capped Rate mortgage as they will always know what the maximum amount that they will need to find each month will be. That makes planning much easier without the risk of having to find extra money.
If the borrower also wants to be able to enjoy a reduced payment when the interest rate falls then the Capped Rate mortgage allows for that adjustment. Itís the bonus of the Capped Rate mortgage and pays off in real terms in the event of a rate drop. Watching the base rate fall while you are committed to a Fixed Rate mortgage can be a frustrating feeling but itís not a concern for those who have opted for the Capped Rate mortgage.