Capped mortgages
Capped mortgages are essentialy a tracker mortgage with an additional level of security, the ‘cap’.
Capped mortgages, like trackers, will track the Bank of England base rate. The rate payable however will stop at a predefined upper level known as the ‘cap’ as the BoE base rate rises.
This all sounds very attractive a mortgage that has teh potential to get cheaper but no more expensive than 'X'. However all is not as it seems:
1. The initial rate will be significantly higher than other products
2. The cap is quite a bit higher than the initial rate (see how distant the 'cap' is getting)
who should use capped mortgages?
Capped mortgage suits those who can handle the ups and downs of a tracker mortgage but are concerned about interest rates flying away too high, but as the numbered list above highlights, the cap itself will be quite high.
In summary capped mortgages offer you additional protection and a potential upside in the rates dropping but you will pay quite a premium at the start for having these securities.