Glossary · UK
What is Capped Rate Mortgage?
A mortgage where the interest rate can move but cannot rise above a set ceiling for an agreed period, while still able to fall.
Full Definition
A capped rate mortgage is a type of variable rate home loan where the interest rate can change in line with the lender's standard variable rate or a tracked benchmark, but is guaranteed not to exceed a stated ceiling, known as the cap, for an agreed period. This gives borrowers the best of both worlds in principle: protection against sharp rate rises, while still benefiting if rates fall. Some deals also include a 'collar', a floor below which the rate cannot drop. Capped rates are less common in the UK than fixed or tracker mortgages, and the certainty of the cap is usually paid for through a higher starting rate or fees. Capped mortgages suit borrowers who want budgeting security but think rates may fall. When the capped period ends, the loan typically reverts to the lender's standard variable rate. Use a mortgage calculator to compare the cost against fixed and tracker alternatives over the deal term.