What is a capped rate variable mortgage?

A capped rate variable mortgage is specifically designed to provide borrowers with the benefits of a variable interest rate while also offering protection against rising rates. In this type of mortgage, the interest rate can fluctuate based on market conditions, which means that payments can decrease if rates drop. However, the key feature is the "cap," which establishes a maximum interest rate that the borrower would be subject to. This cap protects the borrower from significant increases in interest rates, ensuring that while they can benefit from lower rates, they have a clear limit on how high their interest payments could rise.

This distinguishing feature makes a capped rate variable mortgage attractive to those who want to take advantage of the potential savings from variable rates while having a safeguard against interest rate hikes that could lead to financial strain.