With A Fixed Rate Mortgage You Can Ignore Rate Rises
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We'll discover what the fixed rate mortgage is, and its benefits. We will also look into how a mortgage overpayment calculator might save you lots of cash. From definite security with the fixed rate mortgage to potential cash saved 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. Locked in interest rates mean locked in monthly payments.
What are the advantages of a fixed rate mortgage? No need to worry about fluctuating interest rates. Your rate and your payments are fixed. You can estimate your outgoings easier knowing your monthly payment is fixed.
If the bank base interest rate starts to rise, yours will stay as it is. In our lifetime we have already seen some distressing interest rate rises. If the rates rose drastically over a short term those on variable mortgages could struggle to meet payments.
There can be certain circumstances when a fixed rate mortgage may not be right for you. You may decide you need to move house, or even have an unexpected child and simply need more room. In situations like these you may need to redeem the mortgage and pay a hefty redemption penalty on the fixed rate mortgage.
A redemption penalty is a charge that almost always comes with a fixed rate deal. When you can least afford it you could have a charge slapped on you. You must think twice before agreeing to a fixed rate deal if a charge like this will badly affect you.
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 will show you how many years you can expect to shorten your mortgage by. It also gives you a figure in cash that you can expect to save. If you play around with the overpayment figure you can see that the more you overpay the more you save, in cash and years.
You may be surprised at some of the savings you can make. Quick example, 25 year mortgage borrowing 100,000 at 5%. 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.
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.
If we look at the example where we paid 100 extra and knocked over 6 years off the length. You pay nothing more for the last 6 years of the term, which equates to about another 40 grand saved. You don't pay this money to your lender so you get to keep it, either save it or spend it.
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
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