Cap

In interest terms, the cap is the maximum rate that will be charged. i.e. a mortgage or loan which has a variable rate, but that rate is capped at a certain interest level; the rate is not allowed to go over the capped rate. However if the lenders standard variable falls below the capped rate your rate will fall in line with it. If the lenders variable rate rises above the capped rate your rate will not rise above the capped rate.

Some mortgage lenders now offer capped rate mortgages which track the bank of England base rate instead of being linked to the lenders standard variable rate. These tracker capped rate mortgages can be beneficial as they guarantee to fall if the bank of England reduces the base rate. In the event of a base rate change the products rate will typically change after 14 working days. As one of the main benefits of a capped rate mortgage is your mortgage payments reducing as interest rates fall, it is important to check the small print of a capped rate mortgage scheme.

Note that capped rates are generally higher than the equivalent fixed rate, early redemption penalties can be onerous and expensive, you will normally have to pay an application fee when arranging your capped rate mortgage and choices are limited. However you do get peace of mind that your mortgage will benefit from low interest rates and not rise beyond a pre-agreed limit during the capped rate period.

In flexible loan terms, the cap is the maximum amount that can be borrowed at any time (including interest).

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