If You Want To Move Home Avoid A Fixed Rate Mortgage | Mortgage

If You Want To Move Home Avoid A Fixed Rate Mortgage

by MontyBurn

We'll have a look at what benefits there are to a fixed rate mortgage for you. Then prepare to be amazed at the savings made with a mortgage overpayment calculator. From definite security with the fixed rate mortgage to potential cash saved with the overpayment calculator.

Of the various types of mortgage available, the fixed rate is only one of them. You get your interest rate locked for the period of the deal, usually a few years. Locked in interest rates mean locked in monthly payments.

Are there any benefits to a fixed rate mortgage? A fixed rate of interest means a fixed monthly mortgage payment. You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.

No matter what the average interest rate is, your rate will stay the same. There have been some alarming short term interest rate rises in our recent history. 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. 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.

Most fixed rate mortgages come tied to a nasty redemption penalty. These charges can be pretty steep, and come at a time when you don't need the extra stress. Think hard before you take a fixed rate mortgage as these charges can really disrupt your plans.

You might like to think about paying a small extra overpayment each month as you go through the length of your mortgage. 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.

Are there any advantages to paying a bit extra each month? 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.

What do you do with a mortgage overpayment calculator? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You then enter any extra amount you can afford to pay. Or enter various value for fun.

You get a resulting figure out of the calculator in years you can shave off. It also tells you what sort of financial saving you can expect to make. Playing around with the actual overpayment figure can reveal that the more you can pay, the faster you finish your mortgage.

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.

Nice savings on a 50 extra payment. But what happens if you pay an extra 100 though? 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.

Another benefit is that for the last few years of the original (25 year) term, you don't pay anything. It's definitely a reality for you to be free of your mortgage years before planned. Lenders will not tell you this, they like to keep this a secret.

In our example where we saved six years off the length with a hundred a month overpayment. No payments for 6 years means another 40 thousand saved in monthly payments. 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. Every month you pay the same so you get to sleep easy at night knowing this. We also looked into the future and saw some big savings if you can make a little overpayment now.

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.