 Sam
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Joined: 21 May 2005
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Location: CALIFORNIA
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 Posted: Sat Jun 05, 2004 5:13 am Post subject: Capped Rate Mortgage |
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Capped Rate Mortgage gives a low short-term rate along with a long-term security. It is a mixture between fixed rate and a standard adjustable rate mortgage.These mortgages consist of standard variable rates plus a pre agreed and defined upper limit, in the form of cap.
Advantages of capped rate mortgage are as following:
- It allows the borrower to budget more easily, by removing the risk of interest rate increasing beyond a known level.
- For the borrower the interest rates will remain fixed, even if the Bank of England interest rate rises above the limit.
- It also allows the borrower to enjoy lower interest rates, if the base rate falls.
Disadvantages of capped rate mortgage are as following:
- A borrower has to pay an application fee for getting a capped rate mortgage.
- In this type the lender charges higher interest rates than the fixed rate mortgage. Here a borrower has to pay for the security of the cap.
- Here the borrower has to pay redemption penalties. He would not be able to change his mortgage during the 'early redemption penalty period'.
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