Another standard mortgage you may come across when looking at your various mortgage options is the capped rate mortgage. These mortgages are a cross between fixed rate and variable rate mortgages. They allow you to budget the same as a fixed rate but give you the benefits of a variable rate.
A capped rate mortgage is a mortgage with an interest rate that will not go above a particular rate or cap. However, it will not go below a certain point either. Between these two points, the interest rate will vary as the market changes. This agreement is the same as a fixed rate and only lasts for a short period of time within the mortgage. After the arrangement period has ended the interest rate shifts to a variable rate that follows the market trends.
It is important to note that with capped mortgages, there is an arrangement fee and there are usually severe ERC or early redemption charges during the first years of the mortgage if you change lenders during that period. All in all, however, a capped interest rate mortgage gives you the best of both worlds by allowing planning and versatility when it comes to budgeting.