A Capped Rate mortgage is part variable rate and part fixed rate. The rate you pay moves in line with the base rate but there is an upper ceiling/ cap which gives you some protection from excessive rises.

Just as a collar sets a minimum rate (discussed in the tracker mortgage section), so a cap sets a maximum rate above which your payments will not go beyond. Naturally, these mortgages tend to be popular in times of uncertainty and where people/ advisors are concerned that interest rates might soar.

Pros: You benefit from interest rate falls and have protection from excessive interest rate rises.

Cons: The "cap" tends to be set quite high i.e. you will still feel the negative impact of some rate rises, and the starting rate is generally higher than normal variable and fixed rate mortgages.