What does Capped Rate Mortgages mean?

Basically, a capped rate mortgage can be considered a combination of a fixed and a variable rate mortgage. Having determined a cap over a certain period of time, it simply means that no matter what the interest rate you have to pay for becomes sort of locked in within that cap, it will not exceed it.

The capped rate actually works like a threshold which will never get passed: if the variable rate drops and is much below the capped rate, then you will be required to pay that variable rate value, so you can actually enjoy the incurring lower interest rates.

The ‘cap and collar mortgages’ is one very fashionable term nowadays and this refers to the lowest (collar) and highest (cap) admitted interest rates one has to pay for. Perhaps one drawback of these types of mortgages is that in case you decide to finish off your mortgage debt earlier than the end term, the lender will usually require en early redemption fee for that.