Fixed Rate Mortgage - Good Or Bad? | Mortgage

by MontyBurn

We are going to investigate what a fixed rate mortgage can do for you. We will also look into how a mortgage overpayment calculator might save you lots of cash. From definite security with the fixed rate mortgage to potential cash saved with the overpayment calculator.

A fixed rate mortgage is one of the various types available. The interest rate is fixed, usually for a number of years. Because the interest rate is fixed, so are your monthly payments.

Are there any benefits to a fixed rate mortgage? Because your payments stay the same you don't get ups and downs in your monthly payments. You get to budget easier every month as your payments remain the same.

Bank base rates may rise drastically, however yours will be the same because it's fixed. In the last few decades we have seen interest rates almost double in a few short months. People on variable rate mortgages are much more likely to be affected by rapid rises in interest rates.

There are a few situations when a fixed rate mortgage may be a bad decision. If you suddenly have an extra family member and need more space. Or you are simply considering moving home soon. Any sort of situation like this can cause unexpected charges by way of redemption penalties.

Nearly all fixed rate mortgages have a redemption penalty attached. When you can least afford it you could have a charge slapped on you. These unexpected charges can hurt. Consider carefully whether a fixed rate is the one for you.

During the term of your mortgage it's worth considering paying a bit extra each month if your budget will stretch. You are not tied to make the same payments for the duration of the mortgage, usually 25 years. You lender will not tell you it's possible to pay extra as they prefer you just pay the minimum.

What are the up sides to paying extra each and every month? Topping up your monthly minimum payment means you can knock a few years of the length of your mortgage. By paying a bit extra now, the savings mount up substantially later on.

What do you do with a mortgage overpayment calculator? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You can then play around by changing the figure you can afford to overpay.

The calculator tells you how many years you will knock off. It also tells you what sort of financial saving you can expect to make. Putting bigger figures in the overpayment box will show bigger savings and even more time saved.

You may be amazed by how much you could save. If we take a mortgage of 100,000 borrowed over 25 years and assume you get an average 5% interest rate. You could save over twelve thousand and shorten the mortgage by more than 3 years just by paying an extra 50 each month.

Nice savings on a 50 extra payment. But what happens if you pay an extra 100 though? We'll use the same mortgage example figures but pay 100 extra. You can save 20 thousand in cash. You can also shorten your mortgage by more than 6 years.

One more advantage is that the years you save are payment free, nothing at all to pay. By paying a little extra now, you could easily be mortgage free well before you ever expected. You never get info like this from your lender. This sort of stuff is kept quiet by the industry.

In our example where we saved six years off the length with a hundred a month overpayment. A six year saving translates into about a forty grand saving in cash. You don't pay this money to your lender so you get to keep it, either save it or spend it.

To recap we had a look at what benefit a fixed rate mortgage has for you. You get a good night's sleep and regular level payments. We also had a look at the savings to be made by paying a bit extra every month. It all adds up.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Monty Burn was head honcho at the Voluntary Mortgage Regulator until they sacked him for helping the regular guy on the street save money. Find out how to get a top fixed rate mortgage deal at his site. Try our overpayment mortgage calculator and discover how to save shedloads of cash.