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Capped Rates
- The capped rate mortgage is a mixture
between fixed rate and standard variable rate mortgages.
Mortgages with rates that are capped consist of the standard variable rate (SVR) plus a
pre-agreed and defined upper limit in the form of the cap. Your interest rate
is guaranteed not to rise above this level for the period the cap is in place.
There may be a charge for early redemption of this type of product.
Advantages
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If the base rate goes up to a
level higher than the capped rate you do not pay the excess.
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You can benefit from low
interest rates if the base rate falls. In other words, you get the security
that you know the maximum amount you will have to pay in interest.
Disadvantages
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Lenders typically charge
slightly higher rates than the fixed rate mortgage; you pay for the security
of the cap.
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Application fees normally apply to for
arranging a capped mortgage.
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Redemption penalties normally apply as a
condition (similar to fixed mortgage periods). (typically may be
6 months mortgage repayments).
Interest rates today are at a historical lows as
the UK Government, along with the rest of the World, fights off Global
recession, the impact of September 11th and US Corporate accounting scandals. In
addition, the Governments policy and ability to enter the Euro relies on one of
the 5 economic tests being met - a convergence of UK interest rates with the
euro zone interest rate of 2.5%. Euro convergence implies a reduction in
interest rates to meet political objectives, not a rise in rates from their
present levels. A major problem with this convergence is that lower interest
rates may increase an already massive record UK personal debt problem!
Obtaining balanced advice is always hard if
you have no personal contacts in the Financial Service industry. The importance
of obtaining the best overall mortgage deal is vital in calculating your overall
profitability; a poor package may restrict your investment goal and eat into
your final Return on Investment. IFA�s are invaluable in working with a
select band of mortgage companies and speeding through mortgage applications.
They are best placed to advise on all mortgage products currently available in
the marketplace. An IFA is constrained by legal obligations to investigate your
financial needs in order to recommend financial products. They will have access
to potentially thousands of mortgages products, pension plans, insurance
products and so on. They will present a number of options based on your written
needs. Roughly 80% of all the UK�s buy to let mortgages are arranged via some
form of broker or IFA.
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