Fixed Rate Mortgages - Who Benefits Most - You Or The Lender? | Mortgage

Fixed Rate Mortgages - Who Benefits Most - You Or The Lender?

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. You get security from the fixed rate mortgage & you may get a nice surprise from 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. Your interest rate, and therefore your payments are fixed.

What, if any, are the up sides to fixed rate mortgages? 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.

Bank base rates may rise drastically, however yours will be the same because it's 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.

There can be certain circumstances when a fixed rate mortgage may not be right for you. 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.

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. Think hard before you take a fixed rate mortgage as these charges can really disrupt your plans.

It's worth thinking about paying a bit extra each month in addition to whatever you normally pay. It's not set in stone that you have to pay the same minimum amount every month. You lender will prefer you make the minimum payment and will never tell you it's possible to pay extra.

If you do pay extra each month, are there any benefits to this? You can shave several years off your mortgage term by paying slightly more each month. Not only do you save years, you can also save thousands and thousands of your hard earned money.

How do you use a mortgage overpayment calculator? Enter all the figures that relate to your mortgage. 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. Both the years and cash saved obviously increase if you put in a higher overpayment figure.

You might be pleasantly surprised at the savings to be made. As an example, borrow 100,000 at 5% over 25 years. Making an overpayment of 50 every month will save you 12,000 and knock over 3 years off.

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

An extra advantage is you won't have any payments to make during the last few years of the mortgage. It's definitely a reality for you to be free of your mortgage years before planned. You won't hear this info from any lenders though. You need to discover info like this for yourself.

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 saving is yours as you will never need to give it to your lender as you originally planned.

To recap we had a look at what benefit a fixed rate mortgage has for you. You get to sleep easy in the knowledge your payment will stay the same month after month. Also consider the huge potential in making a little overpayment every month. Even small amounts will add up.

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. You could shave years off and save thousands on your mortgage using our overpayment calculator on your mortgage.