Capped rate mortgages have variable interest rates that will not rise above a certain upper limit.

Interest on capped rate mortgages is usually charged at the lender’s Standard Variable Rate (SVR) and any changes to this rate will affect the amount of monthly repayments due.

However, unlike a normal variable rate product, capped rate Mortgages offer the borrower some protection against interest rate rises.

The “cap” is an agreed upper limit that the variable interest rate cannot exceed.

Therefore any rises in the lender’s SVR below the cap will be passed on to the borrower, while any rises above the cap will not.

Conversely, any falls in the lender’s SVR below the cap will be passed on to the borrower, therefore reducing the amount of monthly repayments due.

Because of this, capped rate mortgages are ideal for borrowers who are expecting interest rates to rise.

Capped rate Mortgages may also have an associated “collar” below which the borrower’s rate cannot fall. These products are known as cap and collar mortgages.

It is important to note that most lenders charge an arrangement fee for their capped rate mortgage products.