New RateCapper from the Royal Bank
May 13, 2010 by LUKASST · Leave a Comment
The Cost of Peace of Mind is Getting More Complex
How much protection do you really need?
The latest prophylactic being sold to homeowners worried about getting caught with nasty high interest rates is something called the RateCapper from the Royal Bank. It’s a product that offers you a variable rate that floats with prime, but guarantees that your mortgage rate will not go beyond a certain point during the five-year term.
The price – there’s always a price – is that you give up the discount that you can negotiate off the prime rate.
The Royal Bank product, also for a five-year term, guarantees your rate cannot go above 5.875% – but allows consumers to borrow at prime, or 2.25%, today. The price for security is not quite as steep as National Bank’s product, but consumers are still paying for it.
“It’s the best product in a rising rate environment for consumers who can’t choose between fixed and variable. They get all the benefits of variables, but they know their price won’t go beyond a certain point,” says Anjel Van Damme, director of home equity financing products with the Royal Bank.
The bank protects itself from the possibility of rates skyrocketing through hedging. It should be noted that consumers can exit the Royal Bank product with the usual variable-rate penalty of three months of payments – albeit based on the higher capped rate.
Source: Calgary Herald
