Ignore Interest Rate Rises With A Fixed Rate Mortgage

We’ll have a look at what benefits there are to a fixed rate mortgage for you. We’ll then look at using a mortgage overpayment calculator. You get security from the fixed rate mortgage & you may get a nice surprise from the overpayment calculator.

Of the various types of mortgage available, the fixed rate is only one of them. You get a fixed interest period for several years. The interest rate you pay is locked; therefore your monthly payments are also locked.

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.

No matter what the average interest rate is, your rate will stay the same. 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.

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.

Fixed rate mortgages nearly always come bundled with a redemption penalty. 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 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? You can shave several years off your mortgage term by paying slightly more each month. Not only do you save years, you can also save thousands and thousands of your hard earned money.

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.

The calculator tells you how many years you will knock off. It also tells you what sort of financial saving you can expect to make. Playing around with the actual overpayment figure can reveal that the more you can pay, the faster you finish your mortgage.

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.

An extra benefit is the years you save are free from any payment whatsoever. It’s definitely a reality for you to be free of your mortgage years before planned. Lenders will not tell you this, they like to keep this a secret.

In the example where we paid an extra 100 every month and shortened the mortgage by six years. 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 at potential savings by paying extra each month. Every little helps.

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