A capped rate mortgage provides protection against rising variable interest rates as there is a fixed maximum interest rate you will pay for a set
period, typically between one and five years.
The interest rate you pay will not rise above this 'capped' figure, but if the lender's variable rate falls below
the capped rate you would benefit from the lower rate. The advantages are protection against rising rates, easy monthly budgeting and the possibility of your
interest rate falling in the future.
One point to consider is that if the capped rate is lower than the lender's ordinary rate any future reductions in the lender's interest rate will not automatically be passed on until the variable rate falls below the level of the capped rate.
Some capped rate mortgages have a lower limit below which your interest rate will not fall during the capped rate period. At the end of this period, the mortgage reverts to a variable rate.
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