Capped Rate Mortgages

A capped rate mortgage is similar to a variable rate mortgage with the main difference being there is an upper interest rate limit or "cap". This gives the borrower security in knowing that repayments for the duration of the capped rate will never go above a maximum cost. Some capped rate mortgages also employ what is called a "collar", this is a a limit at the lower end of the interest rate range and is more for the protection of the lender so if interest rates drop suddenly they will not be out of pocket. The duration for a capped rate mortgage is normally in the range of 2, 3, 4, or 5 years, after which a new deal will need to be negotiated.