A capped rate mortgage is ideal for those who would like to know the most they will ever have to pay each month for their mortgage, but at the same time benefit by paying less if interest rates fall.

The loan has a maximum interest rate over which you will not be charged for a set period. However, if the lender’s variable rate falls below the capped rate, your interest rate also falls. 

Since the capped rate offers this dual benefit, a lender will usually set a higher rate for a capped mortgage over, say, three years, than it will charge on a fixed rate for the same period.