The Time Is Right For Fixed Rate Mortgages
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 then look at using a mortgage overpayment calculator. Security comes with the fixed rate mortgage, whereas huge savings can come 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. If the interest rate remains static, so do your monthly payments.
Do fixed rate mortgages have any plus points? 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.
It doesn’t matter how much interest rates rise, your payments are fixed. In the last few decades we have seen interest rates almost double in a few short months. Being on a variable rate leaves you susceptible to the rapid rise of your monthly payment.
There can be certain circumstances when a fixed rate mortgage may not be right for you. 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. In situations like these you may need to redeem the mortgage and pay a hefty redemption penalty on the fixed rate mortgage.
Fixed rate mortgages nearly always come bundled with a redemption penalty. These redemption penalties can hit you hard just when you don’t need it. If a charge like this will hurt you then you must think very carefully before taking a fixed rate mortgage.
One thing to consider while having the mortgage is to pay a bit extra every month if you can afford it. You don’t have to make the same payment month after month for 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? You can easily shave years of your mortgage. Be debt free much earlier. Not only do you save years, you can also save thousands and thousands of your hard earned money.
In what way does a mortgage overpayment calculator work? You can enter all the relevant figures from your particular deal. You then enter any extra amount you can afford to pay. Or enter various value for fun.
The calculator will then tell you how many years you might reduce your mortgage by. It will tell you what sort of cash lump sum you can expect to save as well. 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. If you borrowed a hundred thousand at five percent over twenty five years. By paying an extra fifty each month could save you over 3 years and 12 thousand.
Now an example of 100 extra instead of 50 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.
An extra benefit is the years you save are free from any payment whatsoever. By paying a little extra now, you could easily be mortgage free well before you ever expected. You won’t hear this info from any lenders though. You need to discover info like this for yourself.
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. You can do what you like with this extra as it never needs to be paid to your lender.
We’ve looked at some of the advantages of a fixed rate mortgage. Regular payments and a good night sleep. We also looked into the future and saw some big savings if you can make a little overpayment now.
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