Should I Consider A Fixed Rate Mortgage - Why?
Jun 1, 2009 Real Estate Properties
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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.
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. Being on a variable rate leaves you susceptible to the rapid rise of your monthly payment.
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.
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. You lender will not tell you it’s possible to pay extra as they prefer you just pay the minimum.
What are the best reasons to paying a bit extra every month? If you consistently pay extra in the early years of your agreement you can knock several years off the length. Not only do you save years, you can also save thousands and thousands of your hard earned money.
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.
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.
There are astonishing amounts of savings to be had. If you had a 25 year mortgage and borrowed 100 grand at 5% interest. Making an overpayment of 50 every month will save you 12,000 and knock over 3 years off.
Nice savings on a 50 extra payment. But what happens if you pay an extra 100 though? Paying 100 extra every month using the same example mortgage. You can knock a staggering 6 years or more off the length and save yourself in the region of 20 thousand.
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 our example where we saved six years off the length with a hundred a month overpayment. A six year saving translates into about a forty grand saving in cash. This saving is yours as you will never need to give it to your lender as you originally planned.
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.
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