|
|
|
|
|
|
|
|
Complete Guide to Mortgages |
|
|
|
|
|
|
|
Capped Rate Mortgages
Mortgages are a
compromise between fixed rate and variable-rate mortgages.
There is a fixed upper limit to the amount of interest
that will be charged on your home loan but if the base
rate falls, the interest charged on it remains in line
with it and will fall too. In this way, capped mortgages
combine the most attractive aspects of fixed- and
variable-rate mortgages.
The cap will not last the entire life of your
mortgage but can last as long as five years or even more,
should you want to commit for that long. They are
generally worth considering when interest rates are either
rising rapidly or when there is uncertainty over which way
they will go.
Advantages
Capped
mortgage are very much a safe choice as they offer
protection against rates rising. So for customers on a
budget they can be as attractive an option as fixed rates.
The bonus is that unlike a fixed product, you benefit from
any fall in rates.
If you have a five-year capped-rate mortgage at 6%,
for example, and your lender increases its SVR by 0.5%,
your repayments will not change. If your lender lowers its
SVR by 0.5%, however, the interest rate on your mortgage
will fall to 5.5%.
Capped products are also increasingly sophisticated and
there are products available with introductory discount
periods for people who need to pay less initially.
Disadvantages
Although
a secure choice, capped mortgages are a cautious one and
inevitably the rates are not as competitive as comparable
fixed-rate or discounted products. Lenders do this to
ensure their losses will be minimised if the base rate
rises sharply. If rates go as high as or above the level
of your cap, fixed rates tend to be a better deal and if
rates drop below the cap and stay there, a discounted rate
would probably work out cheaper.
When the capped period is over, your rate will revert to
the lender's standard variable rate (SVR) and as with
fixed and discount products, there will be a tie-in period
to prevent you remortgaging away from this rate for a set
period of time. Up-front arrangement fees are also common
so watch out for high charges.
Cap
and collar
A further
development of the capped mortgage is the cap and collar.
This is where you have a cap limiting the maximum pay and
a collar limiting the minimum pay. The advantage of this
is that there is marginally less risk in it for the tender
so the rate will be slightly cheaper than a normal capped
one and of course your pay rate will still not go above a
certain point.
However, you lose out if interest rates go below your
collar as your pay rate will stick at that point for the
duration of the mortgage period.
Suitability
A capped
mortgage is most likely to suit you if:
You think interest rates may go down and you
want to benefit but you are still on a budget and need
to know your payments won't rise above a certain point
- You are borrowing a large amount - as your interest
payments will be high anyway and you need some
security with the possible advantage of them falling
- You are on a tight budget now but expect your income
to increase in the next few years - so by the time it
does, you can remortgage to a different kind of
product
- You are a first-time buyer looking for security
during your first few years in your new home
|
Whatever Your Circumstances.....
We Can Help. Apply Today, why delay?
Your home is at risk if you do not keep up repayments on a mortgage or
other loans secured on it. Written quotations available on request
subject to status.
All logos and links are the registered trade marks of their
respected companies.
Mortgage-Plus is a licensed credit broker.
|
|
|
|
|
|
|
 |
|
