Capped rate
A variable rate with a contractual limit on movement, e.g. 'capped +1/-1', bounding both rise and fall around the initial rate. This protection caps the risk of runaway installments while keeping an attractive starting point. It is a compromise between the flexibility of variable and the safety of fixed.
Key points
- The cap sets a maximum variation around the initial rate, for example ±1 percentage point.
- Even in an extreme rate spike, the installment stays controlled thanks to the contractual ceiling.
- A capped rate typically starts slightly higher than a pure variable to price in the protection.
- Cap symmetry (up and down) must be checked: some contracts only cap the upside.
Frequently asked questions
How do you read the notation 'capped +2/-2' in a loan offer?
It means the rate can never exceed the initial rate plus 2 points or fall below the initial rate minus 2 points, regardless of how the reference index moves. For example, if the initial rate is 3%, the contractual range will be 1% to 5%. This boundary protects the borrower while retaining some variability.
Why choose a capped rate over a fixed rate?
A capped rate offers a lower starting point than a fixed rate, reducing the initial installment and total cost if rates remain stable or fall. The cap reassures borrowers who do not want unlimited drift. It is a suitable choice when the borrower can tolerate moderate variation but not an unlimited rise.
What mistakes should you avoid when taking out a capped rate?
The most common trap is failing to check whether the cap applies to the installment variation or the rate variation, as these differ when amortization is modular. You must also confirm the cap applies for the full loan term and not only the first revisions. Finally, compare the projected total cost across several rate scenarios to ensure the protection is worth the premium paid.
In practice
A broker presents their client a +1/-1 capped loan at 3.10%: even if Euribor jumps 2 points, the rate capped at 4.10% limits the monthly increase to around fifty euros on €200,000, compared with several hundred euros without a cap.
Official sources
- Getting a mortgage (capped rate) · Service-Public.gouv.fr
- The annual percentage rate (APRC) · Service-Public.gouv.fr
- Mortgage credit (official guide) · Service-Public.gouv.fr