There are 14 different types of mortgages and out of all of them, capped rate mortgages can be the best choice for a lot of people. However, they’re not as common as many of the other kinds of mortgages, so many people don’t even know what they are.
If you know why capped rate mortgages are great, then you’ll know if they’re the right kind of mortgage for you. To find out about them, read on.
The interest rate
All mortgages have an interest rate, which is the amount of interest you pay (along with a small piece of your house or land’s full price) each month, but different mortgage deals have different interest rates, and for an in-depth analysis, its best to speak with a qualified local mortgage broker.
Some are set, so they are the same from start to finish, but there are others that have an interest rate that can change. One of these are variable rate mortgages – and they are similar to capped rate mortgages.
The interest rate on both of them is based on the market’s rates and if they drop or rise, then so will your interest rate (and the amount that you need to pay on the month/s that it changes). Of course, it can be good if your interest rate drops, but it will be bad if the rates increase.
Capped rate mortgages
So, since the interest rate on both variable and capped rate mortgages can go up or down, you may wonder which would be the best choice for you. After all, nobody wants to pay out a lot of interest! However, there is something that makes capped rate mortgages better than variable rate mortgages.
As the name may suggest, there is a cap on how high the interest rate can go, so you’ll know the highest amount of interest that you’ll need to pay. Even if the market’s rates go higher than the set limit, your interest rate won’t go any further.
The cap is set at the mortgages beginning and it stays the same throughout the mortgage, so you don’t need to worry about the set limit changing, either.
Why aren’t they common?
So, since they’re better than variable rate mortgages, why aren’t they as common as them? Well, it’s because there isn’t too much of a risk of the rates going extremely high. Recently, the rates have been quite low, so there is no need for lenders to offer these kinds of mortgages.
If the rates go back up, then they may be more common, but for now, you may need to search for a little while before you find a lender that offers capped rate mortgage deals.