Define: Capped Rate Mortgages

UK Accounting Glossary

Definition: Capped Rate Mortgages



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Full Definition of Capped Rate Mortgages


Capped rate mortgages are a cross between a fixed rate and a variable rate mortgage. The interest rate will never rise above a certain rate within what is known as the capped rate period. If the usual variable mortgage rate is less than the capped rate then the borrower is charged that variable rate. Such a mortgage is attractive as the borrower can benefit from falling interest rates but will not have to pay more than the capped rate.

Along with the term capped rate, the phrase cap and collar mortgages is often encountered. The ‘collar’ is the minimum interest rate, whilst the maximum interest rate payable is known as the ‘cap’. As these mortgages involve the lender having to source funds it is usual for early redemption penalties to be imposed if the mortgage is redeemed within a capped rate period.


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Definition Sources


Definitions for Capped Rate Mortgages are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 15th February 2020.