Capped rate mortgages are similar to fixed rate home loans in that they can protect borrowers from rising interest rates for a period of time.
Capped rate mortgages work by not allowing the variable interest rate to rise above the capped rate. For example, if the capped rate is 6 percent p.a. and the capped period is two years, if the current variable interest rate on this particular home loan was 5 percent p.a., the rate is guaranteed to stay at or below 6 percent for the first two years of the loan, even if the lender’s variable interest rate reaches 6.5 percent in the borrower’s second year.
Capped rate mortgages can be better value if fixed rate loans are advertised at a much higher rate. If you are thinking of fixing your home loan, consider capped rate mortgages as an option and compare some of the best value deals at RateCity.
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