Should I Consider A Fixed Rate Mortgage - Why? | Mortgage

Should I Consider A Fixed Rate Mortgage - Why?

by MontyBurn

We'll have a look at what benefits there are to a fixed rate mortgage for 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.

Fixed rate mortgages are one of a few different types of mortgage available. Usually for a period of several years, you get a fixed rate of interest. Your interest rate, and therefore your payments are fixed.

Are there any benefits to a fixed rate mortgage? Because your payments stay the same you don't get ups and downs in your monthly payments. You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.

Your payment is locked so it really doesn't matter what the general rates are doing. In the last few decades we have seen interest rates almost double in a few short months. You may struggle to meet your payments if you have a variable mortgage and rates rise suddenly.

There is a situation when maybe you should think twice about a fixed rate mortgage. If you think you may move home, or even have another child and need an extra bedroom, then think carefully before taking a fixed rate mortgage. These types of situations could invoke a nasty redemption penalty on your fixed rate mortgage.

Fixed rate mortgages usually come with charges called redemption penalties. These redemption penalties can hit you hard just when you don't need it. These unexpected charges can hurt. Consider carefully whether a fixed rate is the one for you.

During the term of your mortgage it's worth considering paying a bit extra each month if your budget will stretch. You don't have to make the same payment month after month for 25 years. It's not often, if at all, that a lender will tell you it's possible to pay more than your normal minimum monthly payment.

What benefit does paying a bit extra each month have on you and your mortgage? You can shave several years off your mortgage term by paying slightly more each month. You can save a shedload of cash as well as knock a few years off.

What does a mortgage overpayment calculator do? You can enter all the relevant figures from your particular deal. You can put various amounts in as the overpayment. Feel free to play around with this figure.

The calculator will show you how many years you can expect to shorten your mortgage by. You get to see how much money you could possibly save. Playing around with the actual overpayment figure can reveal that the more you can pay, the faster you finish your mortgage.

Some of the savings can be staggering. If we take a mortgage of 100,000 borrowed over 25 years and assume you get an average 5% interest rate. 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.

Now an example of 100 extra instead of 50 extra. Using the same figures in the mortgage but substituting 100 extra for the previous 50 extra. This saves you more than 20,000 and knocks a respectable 6 years off the term.

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

In the example where we paid an extra 100 every month and shortened the mortgage by six years. No payments for 6 years means another 40 thousand saved in monthly payments. You can do what you like with this extra as it never needs to be paid to your lender.

There you have a few benefits of going for a fixed rate mortgage. Not only do you get set monthly payments, you get to sleep easy at night because of it. 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 head of the Voluntary Mortgage Regulator until his sacking for helping too many people. Get a great fixed rate mortgage deal here. You could also try our overpayment calculator on your mortgage and see what you could save.