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Mortgage glossary

Capped rate mortgages

A capped rate mortgage is a loan secured against a property where the level of interest charged has a ceiling.

This means that no matter how high the Bank of England raises the UK's base rate of borrowing, the interest charged by the mortgage lender will not increase above the level agreed in the "cap". But if the Bank of England lowers base rate, a capped-rate mortgage could become cheaper.

The period for which the mortgage is capped is generally limited (typically to two years) and penalty clauses often apply if the mortgage-holder attempts to pay off the mortgage early during this period.

After the period of the cap the interest rate charged by the lender typically reverts to the bank or building society's standard variable rate.


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