Capped Rate Mortgages
Capped rate mortgages were created to combine the features of variable mortgages and fixed rate mortgages.
The mortgage lender and the borrower agree to a cap (limit or ceiling) of the maximum interest you will pay over a given time period, but allowing the rate to drop should the interest rate falls.
Advantages
If the interest rate rises above your ageed cap (limit or ceiling) then your repayment will not increase and if the interest rate falls, then your repayment drops too. Its almost a win-win situation! It also allows you to budget more accurately with the knowledge of what your maximum, worse case scenario payment will be.
Disadvantages
Currently there are a limited range of deals offered by the lenders, and they tend not to be too competetive, and its often the case that the interest rate will be higher than many fixed rate mortgages. Many companies also charge an additional administration fee, usually around £100 - £200, though if interest rates were to rise dramatically, this could look small fry......
If you scout around and consult a good mortgage broker, some lenders are offering lower priced capped mortgages than fixed rate mortgages.