Royal Bank of Canada (TSX:RY) has re-introduced a mortgage option that it says provides an alternative for homeowners seeking the potential interest savings of a variable-rate mortgage combined with the security of a fixed-rate mortgage.

With the RBC RateCapper mortgage, the interest rate over the five-year term is based on the lower of Royal Bank of Canada’s prime rate, currently at 2.25%, and a set maximum rate, currently capped at 5.875%.

“In today’s rising rate environment, we have seen increased demand for mortgage options that provide additional rate protection,” said Marcia Moffat, vice-president, home equity financing, RBC Royal Bank.

“RateCapper gives homeowners the best of both worlds — they can take advantage of a low prime rate, while at the same time locking in a guarantee they will never pay more than the ‘capped rate’ over the term of the mortgage, no matter how much the prime rate may rise.”

“Economic conditions are strong enough that we expect the Bank of Canada to increase the overnight rate starting mid-year,” according to Paul Ferley, assistant chief economist, RBC Economics.

“The pace of increases should be fairly steady through the remainder of 2010 and 2011, which will influence the prime rate.”

IE