Morwenna wants protection against rate rises for the next three years but wants to benefit fully from any fall in her lender's rates. She accepts paying a slightly higher starting rate for this. Which rate type matches all of these needs?
A capped rate cannot rise above the cap but can fall without limit, and lenders usually price that protection above a comparable tracker (Walbrook CeMAP specification v14, MRT2 AC6.2). A fixed rate gives protection but no benefit from falls. A capped and collared rate stops her benefiting below the collar, so not fully. A tracker with a collar gives no protection against rises and blocks falls.
Choosing capped and collared when the customer wants the full benefit of falls.
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