Big banks have been busy trying to create mortgage niches. BMO has its “low frills” 5-year fixed, CIBC has its switch program, and now RBC is positioning its RateCapper as a marquis product.

RBC’s RateCapper mortgage is both new and old, having re-launched in April after a multi-year hiatus.  It’s basically a variable-rate mortgage with a maximum rate (cap), which protect borrowers in case prime rate skyrockets.

Eliminating risk on a variable-rate mortgage sounds marvellous. The problem is, the RateCapper launched with a cap rate (5.85%) that was too high. Most who did the math found that it wasn’t worth considering.

RBC is now trying to address that problem by significantly lowering the cap.  As of today, the maximum rate of the RateCapper is 4.125%. (The starting rate is prime. See this.)

As a result, the RateCapper is now a better match for today’s prime – 0.70% variables. In fact, depending on your assumptions, you could make a case that the RateCapper will save you more than a standard variable if prime rate exceeds 5% in the next few years.

That’s a big “if,” of course, but there are people who don’t believe rates will stay below 5%.  For those people, the RateCapper may be worth a look.

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RateCapper Trivia:  In July 2003, the media reported on “inconsistencies dating from 1997” on a group of clients holding RBC’s RateCapper mortgage. The Hamilton Spectator, for instance, said: “(RBC) contracted that (RateCapper) clients would pay a guaranteed maximum rate, but the rate was ‘missed’ on some mortgages.” As a result, some people apparently paid more than they should have. It does pay to periodically double-check your bank’s math.