The cons of a capped rate mortgage deal

Yesterday, we discussed what a capped rate mortgage is and the advantages or reasons why capped rate mortgages could be more popular now than they have been in the last decade or so.  Today we’d like to talk about the disadvantages of a capped rate mortgage deal.

As with most things in life, you don’t get something for nothing and the capped rate mortgage is no different.  The good things about a capped rate mortgage are that the borrowers receive low payments and the security of knowing the maximum their mortgage repayment could rise to over the term of the deal.  The sacrifice in the case of the capped rate mortgage is usually the interest rate.

When you first take out a capped rate mortgage, you will usually find that the interest rate is higher than the fixed and tracker rate mortgages currently available.  They also often come with higher arrangement fees than other discounted, tracker or fixed rate mortgages.  This is certainly something to consider when looking at capped rate deals.

Like many special offer mortgage deals, there will usually be an early repayment penalty for the duration of the offer so if its capped for two years, there will be an early repayment charge for that period if you chose to remortgage away from the lender in that time.

To help make your decision, always try to avoid choosing based upon the monthly payment or interest rate.  Always look at the total cost of the mortgage, including any fees.



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