Fixed Rate Mortgages - Friend Or Enemy? | Mortgage

by MontyBurn

We are going to investigate what a fixed rate mortgage can do for you. We'll then take a look at an overpayment calculator for your mortgage. From definite security with the fixed rate mortgage to potential cash saved with the overpayment calculator.

A fixed rate mortgage is a special type of mortgage where you have a fixed interest period. A fixed period of interest that may be a couple or several years. If the interest rate remains static, so do your monthly payments.

Do fixed rate mortgages have any plus points? No need to worry about fluctuating interest rates. Your rate and your payments are fixed. You get to budget easier every month as your payments remain the same.

It doesn't matter how much interest rates rise, your payments are fixed. In our lifetime we have already seen some distressing interest rate rises. You may struggle to meet your payments if you have a variable mortgage and rates rise suddenly.

A fixed rate mortgage could be a mistake for you under certain circumstances. The arrival of a new child could mean you need a bigger home and need to move. These are reasons to avoid fixed rate mortgages. 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. You can get hit with a nasty charge when you are least expecting it. These unexpected charges can hurt. Consider carefully whether a fixed rate is the one for you.

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. Lenders prefer you to make payments like this but they never inform you that you could pay extra if you wish.

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? It uses figures from your mortgage. Amount, interest rate, length of term etc. 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. It will tell you what sort of cash lump sum you can expect to save as well. Both the years and cash saved obviously increase if you put in a higher overpayment figure.

You may be surprised at some of the savings you can make. If you had a 25 year mortgage and borrowed 100 grand at 5% interest. 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? The same mortgage example but paying 100 extra every month. You get to shave over 6 years off the length and over 20 grand saved. That's pretty good.

Another benefit is that for the last few years of the original (25 year) term, you don't pay anything. Being free of your mortgage chains a few years early is a definite reality if you can pay extra now. You will never hear this from your lender though; it's simply not in their interests to tell you to pay off early.

If we look at the example where we paid 100 extra and knocked over 6 years off the length. We could save a further 40 thousand by not having to pay your lender every month. This is 40 grand in your pocket and not your lenders. Overpaying is difficult, make no mistake, but the rewards can be amazing.

In this article we've looked at the potential of fixed rate mortgages. 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.

Grab a FREE copy of Monty's Mortgage Bible, the book that caused the Voluntary Mortgage Regulator to sack him. Find out how to get the best fixed rate mortgage deal. Try our overpayment mortgage calculator and discover how to save shedloads of cash.