| Capped Rate Mortgage |
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A capped rate mortgage tries to give you the best of both worlds in that you can benefit from a falling interest rate and have the security of a “cap”. The “cap” is a level of interest that the mortgage will not go above. You will pay either a discounted rate with a cap or a tracker rate with a cap.
A working example is a tracker with a differential of 2% over base means you pay 2.5% (if Bank of England base rate is 0.5%) with a cap of 4% until 31st July 2015, this means that should the Bank of England base rate rise then so will the rate you pay until you reach 4% at which point your mortgage rate will stay until 31st July 2015. More often than not you will be charged exit penalties (early redemption charges) during the period of time your mortgage is “capped”.
You may also come across the term “collar” which means the rate you pay will not fall below a certain level. 
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