Fixed Rate Mortgages - Friend Or Enemy?
Go to: Previous Article Next Article
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.
What are the advantages of a fixed rate mortgage? Your payment is fixed because your particular interest rate is fixed. You can estimate your outgoings easier knowing your monthly payment is fixed.
Bank base rates may rise drastically, however yours will be the same because it's fixed. There have been some alarming short term interest rate rises in our recent history. Being on a variable rate leaves you susceptible to the rapid rise of your monthly payment.
A fixed rate mortgage could be a mistake for you under certain circumstances. 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. Any sort of situation like this can cause unexpected charges by way of redemption penalties.
Nearly all fixed rate mortgages have a redemption penalty attached. You can get hit with a nasty charge when you are least expecting it. These unexpected charges can hurt. Consider carefully whether a fixed rate is the one for you.
During the term of your mortgage it's worth considering paying a bit extra each month if your budget will stretch. It's not set in stone that you have to pay the same minimum amount every month. 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? Topping up your monthly minimum payment means you can knock a few years of the length of your mortgage. By paying a bit extra now, the savings mount up substantially later on.
How do overpayment calculators work? Enter all the figures that relate to your mortgage. You also enter a figure that you want to overpay. You can play around with this figure.
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. Both the years and cash saved obviously increase if you put in a higher overpayment figure.
You may be amazed by how much you could save. If we take a mortgage of 100,000 borrowed over 25 years and assume you get an average 5% interest rate. If you pay an extra fifty each month, you can shave more than 3 years off the length and save 12,000 in interest payments.
That example is paying just 50 extra every month. What if you could afford 100 a month to overpay? The same mortgage example but paying 100 extra every month. You get to shave over 6 years off the length and over 20 grand saved. That's pretty good.
An extra advantage is you won't have any payments to make during the last few years of the mortgage. You could be free of the shackles of your mortgage early by paying a little more now. You won't hear this info from any lenders though. You need to discover info like this for yourself.
If we revisit the example where we knocked more than six years off the mortgage. This shortening of the mortgage by six years saves you another 40,000 or more. This is money you can spend or save as it's not going to your lender every month.
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.
Article Source: Articlelogy.com
- Credit Cards A big selection of Cards in all flavors: Bad Credit Cards, Secured Cards, Prepaid Cards, Canada Cards, Low Interest Cards -
Word Count: 682
Reduce Your Debts Without Bankruptcy. See How Much You Can Save. Free Debt Analysis
