Confused Between Capped and Fixed Interest Rate Mortgage Loans?

The differences and similarities when it comes to having a low interest mortgage

11:22 14 March 2013

A fixed interest rate mortgage means that you have a fixed rate and it does not vary at all throughout the life of the loan. The typical length of home mortgages is about 15 to 20 years.

When the interest rate is fixed you save money by not having to worry about the additional fees that could increase your mortgage loan or the monthly payment that you are making on the loan.  That is the good news.

The bad news is that if the interest rate is lower later on you will not be getting a reduction in the loan or the amount of the monthly payment either.

A capped mortgage rate means that there is a limit on how the interest rate can go up.  It will never go above the capped amount but it can vary underneath the cap limit.  The cap might be equal to the fixed interest rate loans or the institution could set it higher.  The cap is usually set up the same way as a fixed mortgage loan by the length of time in the contract.

If you are considering between the two different loan types you might have to think about what the cap is set at on your loan.  If it is significantly higher than the current interest rate on the market, especially for fixed loans, you will probably opt for the fixed interest rate mortgage.

That will save you money over the long run in your payments and for the whole life of the lending period. 

If it is set closer to the fixed interest rate or lower than the fixed. Then the capped rate loan is the one you should decide to go forward with on the application. Why? Because as stated earlier it could fluctuate below the cap limit and save you money, while never going above it.