How A Capped Offset Mortgage Can Help You Manage Your Finances

The idea of an offset mortgage is that people will be able to control their finances better, and capping that mortgage is just another way of controlling your finances. Like other capped mortgages, a capped offset mortgage is ideal for people who want some security about their monthly offset mortgage payments. A capped offset mortgage is a sort of half way house between a fixed rate offset mortgage and a variable rate or tracker offset mortgage - however interest rates react and however you work with the mortgage, you have some stability and some assurance with your rate.

Essentially, a capped offset mortgage fixes your monthly offset mortgage payment at the highest interest rate you will ever pay on your mortgage. This is usually for a fixed period of up to five years. A capped offset mortgage is a relatively rare product and may only be found when lenders think interest rates are unlikely to rise further. But thanks to the Bank of England's recent decision in early 2009 to reduce interest rates, capped products are going to gain momentum.

With a capped offset mortgage, borrowers will usually pay the bank's standard variable rate during the preferential rate period. This means that if the lender's standard variable rate falls with the Bank of England base rate drop, borrowers with a capped mortgage offset deal will pay the lower figure. And right now the Base rate is as low as it has ever been, so getting a capped offset mortgage now makes financial sense.

Like many other mortgages, there will often be fees to pay for a capped offset mortgage. Many lenders charge application or booking fees, arrangement fees, money transfer fees and higher lending fees for borrowing more than a certain percentage of the property value.

The interest rate on a capped offset mortgage will usually be higher than the equivalent fixed rate deal, so this is an issue that is worth careful consideration. A capped deal may turn out to be a good idea if there are successive rises in the Bank of England base rate. However, if the base rate falls, then borrowers may find that they repay more on their capped offset mortgage than they would have on a different kind of deal. Despite this, the security of knowing the upper limit of their monthly mortgage payment will suit some borrowers.

It can be difficult to find a capped offset mortgage as not many lenders offer this facility. However, more and more lenders are offering fully flexible standard mortgages or mortgages with flexible features. Borrowers who are unable to find a capped offset mortgage could consider a capped mortgage with flexible features.

Remember to check to see what flexible features come with your capped offset mortgage. These might include overpayments and underpayments, payment holidays and penalty-free lump sum repayment. It's also worth checking to see if any early repayment charges apply to your capped offset mortgage. Not all of these deals can be found online, as some are only available through intermediaries. That's why borrowers should contact a professional offset mortgage advisor to find the right capped offset mortgage deal for them.

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