Fixed Rate Mortgage - Not As Good As Sex But Worth Trying! | Mortgage

Fixed Rate Mortgage - Not As Good As Sex But Worth Trying!

by MontyBurn

We'll discover what the fixed rate mortgage is, and its benefits. We'll also take a peek at how much you could save with an overpayment calculator. You get security from the fixed rate mortgage & you may get a nice surprise from the overpayment calculator.

There are a few different types of mortgage, the fixed rate being only one of them. You get your interest rate locked for the period of the deal, usually a few years. Because the interest rate is fixed, so are your monthly payments.

What are the advantages of a fixed rate mortgage? Because your payments stay the same you don't get ups and downs in your monthly payments. It's a lot easier to plan financially knowing your payment will be the same.

Your payment is locked so it really doesn't matter what the general rates are doing. In our recent history there have been some frightening short term interest rate rises. If the rates rose drastically over a short term those on variable mortgages could struggle to meet payments.

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 situation which sees you changing mortgage can invoke a horrid redemption penalty on you.

Fixed rate mortgages usually come with charges called redemption penalties. When you can least afford it you could have a charge slapped on you. If a charge like this will hurt you then you must think very carefully before taking a fixed rate mortgage.

A consideration during your mortgage term is to pay a bit extra each month on top of your normal payment. You may not realise but you can pay any amount over the minimum monthly payment. You lender will not tell you it's possible to pay extra as they prefer you just pay the minimum.

What are the best reasons to paying a bit extra every month? Topping up your monthly minimum payment means you can knock a few years of the length of your mortgage. You can save a shedload of cash as well as knock a few years off.

How do you use a mortgage overpayment calculator? It uses figures from your mortgage. Amount, interest rate, length of term etc. You can enter a figure that you may think about paying as an extra payment each month.

The calculator will show you how many years you can expect to shorten your mortgage by. You get the expectant cash saving as well. Putting bigger figures in the overpayment box will show bigger savings and even more time saved.

There are astonishing amounts of savings to be had. As an example, borrow 100,000 at 5% over 25 years. You could save over twelve thousand and shorten the mortgage by more than 3 years just by paying an extra 50 each month.

That example is paying just 50 extra every month. What if you could afford 100 a month to overpay? Using the same figures in the mortgage but substituting 100 extra for the previous 50 extra. You get to shave over 6 years off the length and over 20 grand saved. That's pretty good.

An extra benefit is the years you save are free from any payment whatsoever. 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 the example where we paid an extra 100 every month and shortened the mortgage by six years. We could save a further 40 thousand by not having to pay your lender every month. This is money you can spend or save as it's not going to your lender every month.

There you have a few benefits of going for a fixed rate mortgage. You get to sleep easy in the knowledge your payment will stay the same month after month. 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. You could also try our overpayment calculator on your mortgage and see what you could save.