With A Fixed Rate Mortgage You Can Ignore Rate Rises | Mortgage

With A Fixed Rate Mortgage You Can Ignore Rate Rises

by MontyBurn

We'll discover what the fixed rate mortgage is, and its benefits. We will also look into how a mortgage overpayment calculator might save you lots of cash. From definite security with the fixed rate mortgage to potential cash saved with 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. Locked in interest rates mean locked in monthly payments.

What are the fixed rate mortgage good points? You benefit by not having the yo-yo effect on your monthly payments. They stay the same every month. It's a lot easier to plan financially knowing your payment will be the same.

It doesn't matter how much interest rates rise, your payments are fixed. In the not too distant past there have been some real scary rate rises. A rapid rise over a year or so could really see payments rise for those on standard variable mortgages.

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. These types of situations could invoke a nasty redemption penalty on your fixed rate mortgage.

A redemption penalty is a charge that almost always comes with a fixed rate deal. When you can least afford it you could have a charge slapped on you. You must think twice before agreeing to a fixed rate deal if a charge like this will badly affect you.

One thing to consider while having the mortgage is to pay a bit extra every month if you can afford it. You may have a fixed rate but it doesn't mean your payments have to be fixed if you can afford extra. The lenders would love you to do this but they will rarely tell you that you can indeed pay extra.

What are the up sides to paying extra each and every month? If you consistently pay extra in the early years of your agreement you can knock several years off the length. You can save a shedload of cash as well as knock a few years off.

How do overpayment calculators work? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You can enter a figure that you may think about paying as an extra payment each month.

You get a resulting figure out of the calculator in years you can shave off. 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. 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.

The last example was an overpayment of 50 every month, but what happens if you pay 100 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.

One more advantage is that the years you save are payment free, nothing at all to pay. Being mortgage free a few years early could easily be achieved by paying a bit extra now. You will never hear this from your lender though; it's simply not in their interests to tell you to pay off early.

In our example where we saved six years off the length with a hundred a month overpayment. We could save a further 40 thousand by not having to pay your lender every month. 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. 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 head of the Voluntary Mortgage Regulator until his sacking for helping too many people. Discover your best fixed rate mortgage deal. Try our overpayment mortgage calculator and discover how to save shedloads of cash.