| Capped Mortgages |
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The major disadvantage of the fixed-rate mortgage is that whilst it protects you against rising interest rates, it also stops you taking advantage of a fall in interest rates. This is where the capped mortgage comes in. As the name suggests, this type of mortgage provides a roof on the level to which the interest rate on your mortgage can rise. But because your mortgage is capped rather than fixed, your repayments can slide up and down below the level of the cap, depending on what interest rates are doing generally.In principle, you are combining the security of a fixed-rate mortgage with the speculative advantages of a variable-rate mortgage to get the best of both worlds. So, for example, with a capped rate of 6 per cent over two years, you have the assurance that if the lender’s standard mortgage rate rises to 8 per cent, the rate of interest you pay will stay at 6 per cent. (Nor would you later have to repay the difference between the two rates.) But should the lender’s standard rate fall to 4 per cent during that time the rate of interest you pay will fall with it. Some lenders have a collar on their capped rates which, should rates fall below a certain point, your rate will not fall below that rate. Like a fixed-rate or discount, the cap and/or collar is only in place for a set period - generally between one and five years. After the capped period is over, your mortgage is likely to revert to the standard variable interest rate. Other considerations when taking out a capped mortgage are the cost of arrangement fees or if the capped rate is portable and will still apply should you move home within the period of the capped-rate offer. This type of mortgage is not as common as it was, overtaken by the tracker mortgage in terms of popularity and features. However it does make a come back every so often so is worth knowing about. Add this page to your favorite Social Bookmarking websites          
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