Why Should I Think About A Fixed Rate Mortgage? | Mortgage

Why Should I Think About A Fixed Rate 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. 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.

What are the fixed rate mortgage good points? No need to worry about fluctuating interest rates. Your rate and your payments are fixed. You can plan your monthly spending easier knowing your mortgage won't go up unexpectedly.

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.

Under certain circumstances, a fixed rate mortgage could be a mistake. If you suddenly have an extra family member and need more space. Or you are simply considering moving home soon. Any situation which sees you changing mortgage can invoke a horrid redemption penalty on you.

A redemption penalty is a charge that almost always comes with a fixed rate deal. These charges can be pretty steep, and come at a time when you don't need the extra stress. If a charge like this will hurt you then you must think very carefully before taking a fixed rate mortgage.

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. You lender will prefer you make the minimum payment and will never tell you it's possible to pay extra.

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 do you do with a mortgage overpayment calculator? You input various figures relating to your mortgage. You can then play around by changing the figure you can afford to overpay.

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. Putting bigger figures in the overpayment box will show bigger savings and even more time saved.

You might be pleasantly surprised at the savings to be made. Quick example, 25 year mortgage borrowing 100,000 at 5%. By paying an extra fifty each month could save you over 3 years and 12 thousand.

If you can afford to pay 100 extra instead of 50 what would happen? 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 plus point is the years you knock off are totally payment free. It's definitely a reality for you to be free of your mortgage years before planned. Of course your lender will never tell you this, you have to discover this on your own.

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.

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 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 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.