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 a capped offset mortgage is no exception. 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.

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. As some analysts point out, a capped offset mortgage is a relatively rare product and may only be found when lenders think interest rates are unlikely to rise further.

With a capped offset mortgage, borrowers will usually pay the lower of the capped rate or 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 falls, borrowers with a capped mortgage offset deal will pay the lower figure. An early repayment charge may apply if the mortgage is redeemed early.

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.

Capped Mortgage Interest Rates

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 mortgage offset 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.

Where To Find A Capped Mortgage Deal

Lenders who offer capped mortgages include Marsden Building Society, Skipton Building Society and Coventry Building Society. Deals are fixed between three and five years, with APRs between 5.8 per cent and 6.4 per cent. When looking for a capped mortgage offset deal, it is worth examining financial comparison sites to see what the true cost of your mortgage will be over the period that you want to keep it. Many people change their mortgages every two to five years, so you may be ready to change your capped offset mortgage for another deal within this time frame*.

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 capped offset mortgage deals can be found online, as some are only available through intermediaries. That's why borrowers should contact a professional offset mortgage advisors to find the right capped offset mortgage deal for them. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable.

However, please note that The Offset Mortgage Centre cannot advise on or arrange mortgages from the Marsden Building Society.

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© 2007 and 2008 Offset Mortgage Centre | Terms and Conditions | Privacy Statement | We don't charge a fee for admistration of an offset mortgage. The Offset Mortgage Centre is the trading name of The Mortgage Broker Ltd, (a whole of market mortgage broker), which is an appointed representative of Home of Choice Limited, which is authorised and regulated by the Financial Services Authority | Your home may be repossessed if you do not keep up repayments on your mortgage. *Source: www.fool.co.uk - March 2007.