Capped and Collared Remortgage
The mortgage market is literally flooded with a wide range of mortgage products, some of which are fixed rate remortgages, variable rate remortgages, and tracker remortgages. You could easily get overwhelmed with all these rates and products, and if you take the help of a qualified mortgage advisor or mortgage broker, they can easily guide you to the right product for you. If you are familiar with variable and tracker remortgages, you will be able to easily understand capped and collared remortgages.
Capped and Collared Remortgages Explained
As previously mentioned, you must know about variable rate remortgages to understand capped and collared remortgages better.
If you get a variable rate remortgage, the rate of interest you have to pay changes as and when your mortgage lender’s standard variable rate (SVR) changes. The SVR is slightly more than the Bank of England’s base rate and may or may not change when the base rate changes. A tracker remortgage is similar to a variable rate remortgage, except that its rate of interest is directly associated with the base rate and has nothing to do with the lender’s SVR.
1. Capped Remortgages
Capped remortgages are a type of variable rate remortgage. The word “cap” actually refers to “maximum,” and as its name suggests, a capped remortgage deal fixes a maximum rate of interest for your remortgage.
If a borrower takes a capped remortgage loan, he/she is usually prepared to deal with any fluctuations in the rate of interest, but rests secure in the knowledge that the rate can never rise higher than the capped rate. For instance, if you have obtained a capped remortgage loan where the rate is capped at 5 percent, the rate you have to pay will never go higher than 5 percent irrespective of the changes in the lender’s SVR or the Bank of England’s base rate.
2. Collared Remortgages
Collared Remortgages also come under the category of variable rate remortgages and the word “collar” refers to “minimum,” which means that the rate can never become lower than the point at which it is collared.
For instance, if you take a collared remortgage loan, which has a collared rate of 2 percent, you will have to pay a minimum rate of 2 percent even if the base rate or the lender’s SVR drops lower than 2 percent.
Advantages of Capped and Collared Remortgages
Home owners who apply for a remortgage loan usually prefer capped and collared remortgages because they eliminate the insecurity of variable rate remortgages by either capping or collaring the rate or both. Some borrowers want the rate to be only capped, but not collared, in which case they can find several capped remortgage products in the market.
Capped and collared remortgages protect borrowers from sudden ups and downs in the mortgage market. Since they come under the category of variable rate remortgages, borrowers will have to be prepared for ups and downs, but they can rest assured that there will be a limit to these ups and downs.