Sleep Easy With A Fixed Rate Mortgage | Mortgage

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. You get security from the fixed rate mortgage & you may get a nice surprise from the overpayment calculator.

A fixed rate mortgage is one of the various types available. You get your interest rate locked for the period of the deal, usually a few years. 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 plan your monthly spending easier knowing your mortgage won't go up unexpectedly.

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. A rapid rise over a year or so could really see payments rise for those on standard variable mortgages.

A fixed rate mortgage could be a mistake for you under certain circumstances. Moving home in the next year or so. Having a planned or even unplanned child can be reasons to avoid fixed rate mortgages. Either of these events will cause you to trigger an unwanted redemption penalty.

Nearly all fixed rate mortgages have a redemption penalty attached. At a time when you least need it, you could get hit with a redemption penalty. 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. You may have a fixed rate but it doesn't mean your payments have to be fixed if you can afford extra. 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. By paying a bit extra now, the savings mount up substantially later on.

What do you do with a mortgage overpayment calculator? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You also enter a figure that you want to overpay. You can 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. Putting bigger figures in the overpayment box will show bigger savings and even more time saved.

Some of the savings can be staggering. As an example, borrow 100,000 at 5% over 25 years. By paying an extra fifty each month could save you over 3 years and 12 thousand.

Nice savings on a 50 extra payment. But what happens if you pay an extra 100 though? Using the same example mortgage from earlier we now pay 100 extra. You can save 20 thousand in cash. You can also shorten your mortgage by more than 6 years.

An extra advantage is you won't have any payments to make during the last few years of the mortgage. Being mortgage free a few years early could easily be achieved by paying a bit extra now. You never get info like this from your lender. This sort of stuff is kept quiet by the industry.

If we look at the example where we paid 100 extra and knocked over 6 years off the length. A six year saving translates into about a forty grand saving in cash. This is 40 grand in your pocket and not your lenders. Overpaying is difficult, make no mistake, but the rewards can be amazing.

There you have a few benefits of going for a fixed rate mortgage. You get to sleep easy in the knowledge your payment will stay the same month after month. 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 head honcho at the Voluntary Mortgage Regulator until they sacked him for helping the regular guy on the street save money. 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.