Capped Rate Remortgage Gives the Benefits of a Fixed and Tracker Remortgage

If deciding between a fixed rate remortgage or a tracker rate remortgage is causing you confusion, the answer may be for you to look into a capped rate remortgage.  The capped rate remortgage offers the best of both a fixed and a tracker.  While it isn’t very common, there are lenders that offer a capped rate remortgage and it can be worth looking into.

To better understand a capped rate remortgage it is important to clearly understand a fixed rate remortgage and a tracker rate remortgage.  The differences and similarities as well as the unique benefits of each of them are important to understand.  By knowing as much as possible about each, it will help you better appreciate the benefits of securing a capped rate remortgage.

A fixed rate remortgage is a safer type of remortgage for a homeowner.  It will give the homeowner a set amount to expect to pay monthly on their mortgage.  There will be no fluctuations in the interest rate even if the Bank of England raises their interest rate.  The fixed rate will not change.  This too can be a disadvantage, for if the Bank of England lowers their interest rate then there will not be a decrease in the fixed rate associated with the mortgage.  Any savings that could have been had will not be realized.  This can be especially bad should there be a time in the economy when the Bank lowers the rate substantially down from the amount the fixed rate was secured at for the mortgage.  The benefits of the security in knowing what a mortgage payment will be month to month without the risk of increases often out weighs any lack of savings that could be realized in the event the Bank lowers the interest rate. 

One key stipulation with a fixed rate remortgage that should be understood is that there will be a time period associated with the fixed rate.  The rate is guaranteed to stay fixed only for a particular time period.  When this time period ends so does the fixed rate.  At that time the mortgage will convert to the lender’s variable rate which can fluctuate when the lender deems fit to raise or lower their rate.

A tracker rate is less risky than a variable rate but it is considered riskier than a fixed rate deal.  A tracker rate is a rate that is set to fluctuate with the Bank’s standard base interest rate to either rise or decline.  This type of remortgage has the risk of giving the homeowner higher payments should the Bank raise their rate, however if the Bank should lower their rate then a savings would be forthcoming to the homeowner.  Since a tracker rate involves less risk for the lender it often offers much better rates for the homeowner remortgaging than a fixed rate remortgage.  Just as a fixed rate converts to the lender’s variable rate once the term of the deal ends, so will a tracker remortgage.

A Capped Rate Remortgage offers benefits from both a tracker remortgage and a fixed rate remortgage.  A capped rate remortgage will fluctuate according to the Bank’s standard base rate just like a tracker rate but there is a cap or maximum at which the rate can rise.  This offers some protection against rising interest rates by having a cap at which the rate can increase.  It can however fall if the Bank’s rate declines offering a savings to the homeowner.  The rate of a capped rate remortgage is set within a range to offer security if the Bank’s rate increases but offers savings should the Bank’s rate decline.  There is usually a term involved and the cap will end after that time period, at which point another remortgage can be secured or the homeowner will pay the mortgage based on the lender’s variable rate.