Capped rate mortgages and remortgages
Whichever type of mortgage is selected, the lender will charge interest and there will be an overall cost to the borrower. The cost of borrowing will vary depending upon the requirements of the lender; for example, there may be a setting up fee, administrative fee, reservation fee and usually there will be valuation and legal fees to be met. A more attractive interest rate could be available for a larger deposit Mortgages with fixed rates of interest tend to have larger "up front" fees than other mortgages. Capped rates are those which represent maximum rates which will be charged by a lender. Rates may drop below the rate but will not exceed it.
Rates may be capped for either a part or the whole of the term of the loan. Administration fees are usually charged and a redemption penalty may apply if the loan is repaid early, which may involve an extended 'tie-in' period, as with fixed rates. Even if the lender's normal rate is increased to a level greater than the cap, the maximum rate applying to the capped mortgage will continue to be the cap figure.
A collar is sometimes used in conjunction with capped rates, and operates to prevent rates dropping too low, setting a minimum rate.
This may all seem very complex but don't worry use a mortgage broker with experience can be invaluable in helping you to navigate through the different lenders and deals. A good mortgage advisor knows all the processes involved and can help you through each step.