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This kind of arrangement is not seen as often as some might wish.

As the name suggests, the interest rate is capped (it has a ceiling on it ) so that the borrower's monthly payments will be calculated using either the standard variable rate or the capped rate, whichever is lower.

A capped rate mortgage is normally capped for a set period of time of between 1 year and 5 years.

On the face of it, it looks like the borrower wins out no matter what happens! In reality the cap is set at a level that the lender does not expect the variable rate to exceed for too long. If they didn't do this they could lose out quite heavily.

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Capped Rate Mortgage

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