Capped Rate Mortgage
A capped rate mortgage features a variable interest rate with a predetermined maximum ceiling, protecting borrowers from excessive rate increases while allowing benefit from rate decreases.
| Rate Structure | Mechanism |
| Base rate | EIBOR plus margin |
| Rate cap | Maximum percentage specified |
| Cap duration | Typically 3-5 years |
| Post-cap period | Reverts to standard variable |
| Example Scenario | 5% Cap with EIBOR Base |
| Current EIBOR | 3.5% |
| Bank margin | 2% |
| Actual rate | 5.5% (exceeds cap) |
| Charged rate | 5% (cap applies) |
| If EIBOR falls to 2% | 4% charged (below cap) |
| Cost Comparison | vs Fixed Rate |
| Initial rate | Usually 0.25-0.5% higher |
| Downside protection | Limited to cap level |
| Upside participation | Full benefit from rate declines |
| Suitable for | Moderate risk tolerance |
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