| This scheme gives customers a guarantee that
for a given period of time the applied mortgage interest rate will
not rise above a pre-determined level even if other interest rates
increase.
If underlying interest rates vary downward then the rate applied
will also fall. If however underlying interest rates rise then the
new rate will not exceed the ‘cap’.
This type of scheme may attract an initial fee to the lender to
set up the scheme.
In addition there may be redemption penalties on the loan if it
is redeemed within a certain period of time.
When the capped rate expires the interest rate will revert to the
lenders variable rate.
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