Jargon Buster - Definition of Capped Rate Mortgage

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Capped Rate Mortgage

is a mortgage repayment method whereby a limit (or cap) is agreed, this is the maximum amount of interest that you will pay whilst still allowing your interest rate to drop like a variable mortgage rate. This type of mortgage offers the good features of both fixed and variable rate mortgages.

The advantage of a capped rate mortgage is that if the variable rate increases above your capped rate then you will not pay more than your capped amount. If on the other hand the variable rate drops then so does your rate, thus giving you the benefits of both fixed and variable rates.

The disadvantages of capped rate mortgages that that they are hard too find, i.e. there aren't too many lenders offer this style and that they often don't offer the most competitive rates because you pay for having the best of variable and fixed rates. It is also likely that you will incur a setup charge for such mortgages.


Please note that all definitions are intended for general guidance only. For official and current definitions you should always double check your policy wording.

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