Capped Mortgages

Your home may be repossessed if you do not keep up repayments on your mortgage

What is a capped mortgage?

A capped mortgage limits the amount of interest you can be charged on your monthly mortgage repayments.

How does a capped mortgage work?

A capped mortgage works much like a standard variable rate mortgage – the interest you pay on your monthly mortgage repayments can go up or down, depending on where your mortgage provider decides to set its standard variable rate.

The difference with a capped mortgage is that the interest rate can never go past a certain limit - the cap - during the deal, even if the standard variable rate goes higher than this.

How long does a capped mortgage deal last?

A capped mortgage deal usually lasts between two to five years, and once the deal is over, you’ll then be moved onto the provider’s standard variable rate.

At this point you can then decide whether you want to move to another capped mortgage – if this is an option – or take out a different mortgage type or switch providers.

Advantages of a capped mortgage

A capped mortgage can offer advantages like:

• Peace of mind that your mortgage interest rate will never go over a certain limit, even if the standard variable rate goes above this
• The ability to budget your monthly outgoings, because you know that the cap is in place and will stop your mortgage payments from rising above a certain point

Disadvantages of a capped mortgage

Some possible disadvantages to a capped mortgage include:

• Even though your interest rate is capped, it might still increase within that limit – which means your payments would increase. This wouldn’t happen with a fixed rate mortgage where the payments stay the same during the deal
• Capped mortgage fees might be higher than standard mortgage fees. This is because the lender is potentially sacrificing the money its makes on interest payments with the cap being in place
• Ending the mortgage deal early can end up costing you more than it would with other deals

Comparing mortgage quotes

Compare mortgage quotes with MoneySuperMarket’s mortgage comparison tool. Enter the amount of money you think you’d need to borrow for a mortgage loan and how long you’d ideally want to be paying the loan back, as well as the price of the property you’re interested in to see which mortgage deals you might be able to get.

You’ll then be able to compare quotes from different providers by their initial monthly cost and interest rate, the lender’s standard variable interest rate you’d then be moved to, the overall cost of the mortgage, and whether there are any fees included as part of the deal.

The comparison tool doesn’t take into account your financial situation or your credit history, so the interest rate deal you’re offered on your capped mortgage or other mortgage type may be different to the quotes you see.