Capped & Collared
A capped or collared mortgage is a unique type of variable-rate mortgage that combines rate protection and flexibility for borrowers. During the capped period, which usually lasts for a few years, the interest rate is limited by both an upper cap and a lower collar. This means that the interest rate on the mortgage cannot exceed the cap or fall below the collar, providing borrowers with a level of certainty during uncertain economic times.
The cap acts as a shield against excessively high interest rates, offering protection against unexpected rate increases. On the other hand, the collar ensures that borrowers do not miss out on any significant rate reductions by protecting against extremely low interest rates.
After the capped period ends, the mortgage typically transitions to another type of rate, such as the lender's Standard Variable Rate (SVR) or a tracker rate.
At this point, the interest rate is no longer bound by the capped and collared limits. It's essential to consider that capped or collared mortgages may have slightly higher interest rates during the capped period compared to other variable-rate mortgages. This trade-off is designed to compensate for the added protection they provide.
As with any mortgage product, carefully assessing your financial goals and consulting with a mortgage advisor can help you determine if a capped or collared mortgage is the right choice for your individual circumstances. This way, you can make an informed decision that aligns with your needs and preferences, providing you with peace of mind as you navigate the mortgage process.
A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.