Structure

The way they work.

Boiled down to their essentials, capped mortgages have pretty simple structures. From the outset you are told the rate you will start off paying and the maximum rate you can be charged during the life of your deal – the cap. Most capped deals last for two, three or five years though longer term and even ‘life of loan’ caps are sometimes on offer as well. In most cases the rate you start paying will be slightly lower than the capped rate – you might be on 5.25 per cent and told the maximum you can pay is 5.5 per cent for example. If interest rates stay the same during the cap’s term then you should keep being charged the same 5.25 per cent. If rates go up by 0.25 per cent then your rate is likely to hit the 5.5 per cent cap. But if rates go up again – any number of times – then your payments will stay at 5.5 per cent until the end of the deal.