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Capped Rate Mortgage
IThe capped rate mortgage is a good tool to take advantage of fixed and variable mortgages in one. The mortgage is designed so that interest rates can move up and down along with base rate, but never go beyond the cap. The cap creates a very good security for the borrower as the amount of interest cannot exceed the cap. A typical capped rate mortgage can be anywhere from one to five years period, with some capped rate mortgages available for the entire length of the product.
On a capped rate mortgage the interest rate tracks the BOE rate, but it has a delay on the mortgage and the time it takes to reflect would be approximately two weeks. This is not in favour of the lender, as at times when the interest rates rise, without the delay your interest rate would be affected immediately.
The advantage of capped rate mortgage is that while you have the peace of mind that interest rates can only go to a set level, you can take advantage from the fall of interest rates, which would always make a fair saving.
Something to note is that mostly all capped rate mortgages have early repayments fees, with an exceptional few not charging. If the fee does apply it will be only for the term of the capped rate mortgage. Another aspect to a capped rate mortgage is the collar, which sets a minimum the interest rate can fall to, and this is mainly to protect the lender. The collar rate is equally as important as the cap to know, as the higher the cap and lower the collar the more you can gain from the mortgage.
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