Capped & Collared Mortgages

A Capped Rate mortgage puts a ceiling on the rate for a period of time.

This means that the payments cannot go above the rate set during that time. It can of course change if the rates go down.

Advantages

Gives you a guaranteed rate which your repayments cannot exceed

If interest rates fall your repayments will reduce with them

Disadvantages

Usually the Capped rate is higher then a Fixed rate because repayments can fall with interest rates

Usually have to pay application and/or arrangement fees

If the loan is redeemed during and in some cases for a short while after, a penalty fee of several months repayments is payable

Collared

Some Capped rate mortgages have a "Collar". This means that the Lender sets an interest rate below which, the mortgage cannot fall. These may offer a better Capped rate but if the interest rate falls below the "Collar" rate then you do not benefit.