capped rate
remortgage
If your current mortgage is coming to an end and
you are
looking to
re-mortgage
to a product
that offers
protection
with
mortgage
rates, a
capped rate
re-mortgage
could be for
you. A
re-mortgage
is simply
replacing
the existing
mortgage for
another one.
However, it
can be for a
different
kind of
mortgage
This type of
mortgage
offers
security
throughout
the term of
the loan
that the
rate will
not go
beyond a
certain
maximum. You
will also
have the
option to
reduce your
mortgage
rates should
the Bank of
England Base
rate go
down.
Therefore,
the monthly
repayments
will always
remain the
same unless
the base
rate alters
which will
then reduce
your monthly
repayments.
The capped
rate will be
agreed from
the start of
the
re-mortgage
period;
therefore,
you will
always be
aware of the
maximum rate
that the
mortgage
product can
peak at as
the rate
will be
capped at a
certain
point.
Re-mortgaging
to a Capped
Rate means
that you can
tie in to
the agreed
rates for a
maximum five
year period;
however, the
terms can
differ
depending on
lender. All
mortgage
rates are
set around
the Bank of
England base
rate. Any
changes to
the base
rate will
affect the
lenders
mortgage
rate, if the
base rate is
reduced, the
lenders
standard
variable
rate will go
down which
in turn will
decrease
your monthly
payments.
Some lenders
will impose
a minimum
rate limit,
meaning that
the capped
rate isn’t
allowed to
go below a
certain
level. This
particular
product
allows you
to the best
of both
worlds as,
if interest
rates fall,
you benefit
from paying
monthly
repayments
at a lower
interest
rate. If
they rise,
you are
protected
from the
capped rate
perspective
as you know
that the
rates are
never
allowed to
exceed a
certain
point.
Prospective
mortgage
applications
can be made
via your
existing
lender or by
visiting
other high
street
lenders.
There is a
lot of
information
to digest
regarding
re-mortgaging
and should
you require
further
clarification
on capped
rate
products
that are
available,
its often
best to
check with a
financial
advisor who
will usually
provide free
and
impartial
advice on
the most
suitable
mortgage
deal for
you. It pays
to research
thoroughly
as the
mortgage
market is
very
competitive,
therefore,
you could
grab
yourself a
great rate
if you check
all the
relevant
options
available to
you.
Interest
rates on
capped rate
mortgages
are
typically
higher than
a fixed rate
mortgage
product as
you are able
to lock-in
to a
particular
capped rate
for a number
of years.
You will be
eligible to
make your
monthly
repayments
at an agreed
rate, if the
interest
rates rise
then you
will be
insured
against your
mortgage
product
going above
a certain
point (the
cap). If
interest
rates
reduce, you
have the
advantage of
your
mortgage
rates going
down to
reflect the
reduction.
Therefore, a
capped rate
mortgage can
offer you
the benefits
of insuring
you against
rate rises,
however you
might be
paying above
the standard
variable
rate (SVR)
for the
whole
duration of
the loan
should
interest
rates remain
the same.
In order for
the
re-mortgage
application
to be
agreed, you
must pass
the relevant
credit check
performed by
the lender.
All lenders
used this
method to
assess the
suitability
of the
applicant in
relation to
the chosen
mortgage
product.
You should
be aware
that even
though you
will be
protected
from any
major rate
rises, you
could be
repaying the
mortgage on
the basis
that the
agreed
interest
rate is
higher than
the SVR.
Therefore,
if you
believe that
mortgage
rates are
going to
increase
dramatically
then this is
the right
type of
mortgage
product for
you. The
lender could
also impose
redemption
penalties
should you
repay the
mortgage
earlier than
the agreed
term. This
type of
mortgage can
also incur
an
arrangement
fee which is
payable by
you to the
lender.
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