What is it?

A capped rate mortgage is a kind of variable rate mortgage but with a specified upper limit, or cap, above which the rate cannot go during the offer period. The capped rate typically applies for a period of up to three years.

The capped rate is usually lower than the standard variable rate, but this kind of mortgage is not usually as competitive as a fixed or discounted deal.

What does it offer?

A capped rate mortgage can offer a degree of protection against future rate rises whilst enabling you to benefit from any falls in interest rates.

When is it worth considering?

A capped rate mortgage may be worth thinking about if there is uncertainty about interest rates, or if rates are rising rapidly.

What should I be aware of?

With some capped rate mortgages - even if rates go down - your mortgage will not follow beyond a certain point or 'collar'.

There may also be early repayment charges which could extend beyond the period when you are paying the capped rate.