Borrowers warned against capped rate mortgage products

Borrowers currently opting for a capped rate mortgage have been warned they might never reach the cap.

With borrowers increasingly nervous about when rates might start to rise, demand for the mortgages, which have a ceiling that the mortgage rate will not increase above, has increased three-fold since November 2009, according to a recent report.

In response to the growing demand, the number of capped mortgage deals available on the market has increased from one two years ago to 39 at present.

To pay for the security of the cap, mortgage rates on the deals are typically around 0.50 basis points higher than the equivalent variable rate deal. However, with the lowest variable rate deal on the market at 1.90%, there are doubts as to whether a capped deal is currently the best option.

While capped rate mortgages are a good idea in principle, in the current market borrowers are unlikely to ever hit the cap and would likely be better off opting for an alternative deal.

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Thanks as always for your attention. Mark (mark@themortgagemonkey.co.uk)