Capped rate mortgages

A capped-rate mortgage is essentially a hybrid of a fixed-rate and a tracker mortgage. Discover the pros and cons of these mortgage deals.

Capped-rate mortgages are similar to tracker mortgages, in that the interest rate will fluctuate alongside another publicly-available benchmark rates, such as LIBOR or the Bank of England (BoE) base rate. The key difference is that capped-rate mortgages have a maximum rate that cannot be surpassed. This gives homeowners the security associated with a fixed-rate mortgage.

How does a capped mortgage work?

A capped-rate mortgage will typically advertise its interest rate (for example, BoE + 2%) and its capped rate (perhaps 5%). In this case, the buyer can be sure they’ll pay no more than 5% interest during the initial capped-rate period.

Once this introductory period ends, they’ll typically either be switched onto the lender’s standard variable rate or perhaps their existing tracker rate without the cap.

Often, capped-rate mortgages have higher interest rates than the best tracker-rate mortgages. Essentially, homeowners are paying extra for the security that the rate cap provides.

How long does a capped mortgage deal last?

Capped-rate mortgages are similar to fixed-rate and tracker mortgages in that most of the introductory deals last between two and five years.

As with any other type of mortgage, the best rates are available with shorter-term deals.

Affordability checks with capped-rate mortgages

When applying for a capped-rate mortgage, the lender’s affordability assessment will investigate whether you’d be able to afford your monthly repayments at the capped rate. This will ensure your mortgage remains affordable no matter how high interest rates rise.

Still, it’s best to do some calculations yourself, so you’re aware how high your monthly mortgage repayments could rise. Most lenders have mortgage calculators on their website that will allow you to do this.

What are the pros and cons of capped-rate mortgages?


  • The rate cap protects you against interest rates skyrocketing.
  • You can benefit from interest rates decreasing.
  • You’re aware of your maximum interest rate.


  • These products are typically more expensive than tracker-rate mortgages.
  • Few lenders currently offer this type of mortgage.

Finder survey: How many of us plan to purchase a property in the next 10 years?

Not sure19.29%26.81%
Source: Finder survey by Censuswide of 1032 Brits, December 2023
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables is provided by Moneyfacts.

More guides on Finder

Go to site