Fixed Rate Mortgages - Better For You Or The Lender?
Jun 4, 2009 Real Estate Properties
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Well take a look at fixed rate mortgages and how they can be good for you. We’ll also take a peek at how much you could save with an overpayment calculator. From definite security with the fixed rate mortgage to potential cash saved with the overpayment calculator.
Fixed rate mortgages are one of a few different types of mortgage available. The interest rate is fixed, usually for a number of years. The interest rate you pay is locked; therefore your monthly payments are also locked.
What are the fixed rate mortgage good points? Your payment is fixed because your particular interest rate is fixed. You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.
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. If the rates rose drastically over a short term those on variable mortgages could struggle to meet payments.
There are a few situations when a fixed rate mortgage may be a bad decision. 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.
Fixed rate mortgages usually come with charges called redemption penalties. When you can least afford it you could have a charge slapped on you. There is never a good time to be hit with extra charges so think carefully before taking the fixed rate mortgage.
You might like to think about paying a small extra overpayment each month as you go through the length of your mortgage. You are not tied to make the same payments for the duration of the mortgage, usually 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 are the up sides to paying extra each and every month? The extra payments reduce the sum owed quicker and the result is you save years off the term of your deal. Not only do you save years but you save piles of cash, usually many thousands.
How do overpayment calculators work? You input various figures relating to your mortgage. You can enter a figure that you may think about paying as an extra payment each month.
The calculator will then tell you how many years you might reduce your mortgage by. It also gives you a figure in cash that you can expect to save. The figures in years and cash saved will increase the more you overpay each month.
Some of the savings can be staggering. 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.
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. 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 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.
If we go back to the extra 100 each month where we managed to shave six years off. You pay nothing more for the last 6 years of the term, which equates to about another 40 grand saved. This is 40 grand in your pocket and not your lenders. Overpaying is difficult, make no mistake, but the rewards can be amazing.
In conclusion we listed a few benefits of a fixed rate mortgage. Every month you pay the same so you get to sleep easy at night knowing this. We also had a look at a mortgage overpayment calculator and the potential savings that can be had.
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