How to Figure Cap Rates

What Are Cap Rates?

Want to know how to figure Cap rates? You've come to the right place. In this article we'll explain exactly what cap rates are and how to decide if a cap rate mortgage loan is for you.

Well many people get confused with all of the different jargon used to describe various types of mortgage in the market. Cap Rate deals are mortgage loans that have a ceiling on the interest rates that you pay. This means that the rate of interest you pay can not go over a certain point (often referred to as a ceiling). These kinds of mortgage loans give you two main benefits:

Firstly if variable interest rates rise you know that your interest rate will not rise above a certain level, meaning you know the absolute maximum you will have to pay, no matter how high interest rates go in the future. As an illustration in Iceland the government recently raised interest rates from 12% (already high) to 18% as a direct result of the economic crisis. This would mean that unless you had a cap rated mortgage the amount of interest you pay on you mortgage each month would have risen by a whopping 50%!

The second benefit of Caped rate mortgages is that they allow you to benefit from falls in the variable interest rate. In other words when interest rates fall, you benefit by paying less each month.

To summarize to figure is a cap rate deal is for you these types of mortgage allow to benefit from falling interest rates and also limit your exposure to any future rate rises.