Rate cap (capped rate)
A contractual ceiling limiting the possible increase of a variable rate. A +1 capped loan means that if the initial rate is 3%, it can never exceed 4%. The cap protects the borrower against rate rises while allowing them to benefit from potential decreases. It is included in the TAEG calculation at the theoretical maximum rate. Most variable-rate loans offered in France are capped.
Key points
- The cap is expressed in points above the initial rate (e.g. +1, +2, +3).
- It protects the borrower from unlimited Euribor rises during the loan.
- The TAEG of a capped loan is calculated at the theoretical maximum rate (initial rate + cap).
- Almost all variable-rate loans offered to retail borrowers in France are capped.
Frequently asked questions
How should two capped loans be compared to choose the best one?
Compare the TAEG calculated at the maximum rate (initial rate + cap) to ensure affordability in the worst case, then compare the initial rate for the central scenario cost. A +1 cap is more protective than a +3 cap, but the initial rate offered with a tight cap may be slightly higher. The broker presents both scenarios with their impact on the monthly payment.
Why is the TAEG of a capped loan calculated at the maximum rate?
Regulation requires calculation at the ceiling rate to ensure offer comparability and guarantee that the borrower has been informed of the total cost in the worst scenario permitted by the contract. It also allows verification that the borrower remains solvent even if rates rise to the cap.
Is a capped variable loan always preferable to a fixed-rate loan?
Not necessarily. A capped loan is more attractive when rates are high and the borrower anticipates a fall, or over a short term. When fixed rates are historically low, locking the full term at a fixed rate can be more secure, especially for borrowers with limited capacity to absorb a higher monthly payment.
In practice
A variable-rate loan is taken out at 3.20% with a +1 cap. The rate can never exceed 4.20%, regardless of the Euribor level. The TAEG disclosed to the borrower is calculated over the full term at 4.20%.
Official sources
- Getting a mortgage (rate cap) · Service-Public.gouv.fr
- The annual percentage rate (APRC) · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr