What is a Capped Home Loan?
Capped home loans have a security feature similar to fixed home loans. Capped home loans however are not fixed at the one interest rate for a period of time, they are semi-variable.
Their interest rate can reduce in a similar fashion to rate reductions for variable rate mortgages. When rates increase, a capped home loan interest rate will only increase up to a specified rate according to the individual lender. The capped rate period is for a limited length of time and can vary according to each loan’s terms.
For example, a capped period can be for the first year of the loan, for the first two years, three years or five years, depending upon the loan terms.
Benefits of a Capped Home Loan?
Capped home loans can be beneficial when interest rates are expected to increase but are generally at a higher rate than standard variable interest rates.
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