Fixed Rate Mortgages - Are They Worth It? | Mortgage

Fixed Rate Mortgages - Are They Worth It?

by MontyBurn

Let's find out just what a fixed rate mortgage is, and how it may benefit you. We will also look into how a mortgage overpayment calculator might save you lots of cash. With the fixed rate mortgage comes security. With the mortgage overpayment calculator comes potential savings.

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. If the interest rate remains static, so do your monthly payments.

What are the advantages of a fixed rate mortgage? A fixed rate of interest means a fixed monthly mortgage payment. It's a lot easier to plan financially knowing your payment will be the same.

It doesn't matter how much interest rates rise, your payments are fixed. In our recent history there have been some frightening short term interest rate rises. People on variable rate mortgages are much more likely to be affected by rapid rises in interest rates.

Under certain circumstances, a fixed rate mortgage could be a mistake. Moving home in the next year or so. Having a planned or even unplanned child can be reasons to avoid fixed rate mortgages. Any sort of situation like this can cause unexpected charges by way of redemption penalties.

Fixed rate mortgages nearly always come bundled with a redemption penalty. You can get hit with a nasty charge when you are least expecting it. There is never a good time to be hit with extra charges so think carefully before taking the fixed rate mortgage.

You might like to think about paying a small extra overpayment each month as you go through the length of your mortgage. You don't have to make the same payment month after month for 25 years. The lenders would love you to do this but they will rarely tell you that you can indeed pay extra.

What benefit does paying a bit extra each month have on you and your mortgage? The extra payments reduce the sum owed quicker and the result is you save years off the term of your deal. Not only do you save years but you save piles of cash, usually many thousands.

What do you do with a mortgage overpayment calculator? Enter all the figures that relate to your mortgage. You then enter any extra amount you can afford to pay. Or enter various value for fun.

The calculator will then tell you how many years you might reduce your mortgage by. You get to see how much money you could possibly save. The figures in years and cash saved will increase the more you overpay each month.

You may be surprised at some of the savings you can make. Quick example, 25 year mortgage borrowing 100,000 at 5%. If you pay an extra fifty each month, you can shave more than 3 years off the length and save 12,000 in interest payments.

If you can afford to pay 100 extra instead of 50 what would happen? Using the same figures in the mortgage but substituting 100 extra for the previous 50 extra. You can knock a staggering 6 years or more off the length and save yourself in the region of 20 thousand.

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. Lenders will not tell you this, they like to keep this a secret.

If we revisit the example where we knocked more than six years off the mortgage. A six year saving translates into about a forty grand saving in cash. You can do what you like with this extra as it never needs to be paid to your lender.

In this article we've looked at the potential of fixed rate mortgages. Regular payments and a good night sleep. We also looked at potential savings by paying extra each month. Every little helps.

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

Monty Burn was once in charge of the Voluntary Mortgage Regulator. He was forced out becuase he was saving borrowers too much cash! Read up on how to get a great fixed rate deal on your mortgage. Try our overpayment mortgage calculator and discover how to save shedloads of cash.