Sleep Soundly With A Fixed Rate Mortgage
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by: MontyBurn
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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. You get security from the fixed rate mortgage & you may get a nice surprise from the overpayment calculator.
There are a few different types of mortgage, the fixed rate being only one of them. Usually for a period of several years, you get a fixed rate of interest. Because the interest rate is fixed, so are your monthly payments.
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 plan your monthly spending easier knowing your mortgage won't go up unexpectedly.
Your payment is locked so it really doesn't matter what the general rates are doing. In our recent history there have been some frightening short term interest 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.
Most fixed rate mortgages come tied to a nasty redemption penalty. When you can least afford it you could have a charge slapped on you. If a charge like this will hurt you then you must think very carefully before taking a fixed rate mortgage.
During the term of your mortgage it's worth considering paying a bit extra each month if your budget will stretch. You may not realise but you can pay any amount over the minimum monthly payment. The lenders would love you to do this but they will rarely tell you that you can indeed pay extra.
Are there any advantages to paying a bit extra each month? Topping up your monthly minimum payment means you can knock a few years of the length of your mortgage. You can save a shedload of cash as well as knock a few years off.
In what way does a mortgage overpayment calculator work? Enter all the figures that relate to your mortgage. You can then play around by changing the figure you can afford to overpay.
The calculator will then tell you how many years you might reduce 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.
There are astonishing amounts of savings to be had. Quick example, 25 year mortgage borrowing 100,000 at 5%. You could save over twelve thousand and shorten the mortgage by more than 3 years just by paying an extra 50 each month.
That example is paying just 50 extra every month. What if you could afford 100 a month to overpay? Paying 100 extra every month using the same example mortgage. You get to shave over 6 years off the length and over 20 grand saved. That's pretty good.
Another plus point is the years you knock off are totally payment free. You could be free of the shackles of your mortgage early by paying a little more now. You will never hear this from your lender though; it's simply not in their interests to tell you to pay off early.
If we go back to the extra 100 each month where we managed to shave six years off. No payments for 6 years means another 40 thousand saved in monthly payments. This saving is yours as you will never need to give it to your lender as you originally planned.
We've looked at some of the advantages of a fixed rate mortgage. Not only do you get set monthly payments, you get to sleep easy at night because of it. We also looked into the future and saw some big savings if you can make a little overpayment now.
About the Author
Grab a FREE copy of Monty's Mortgage Bible, the book that caused the Voluntary Mortgage Regulator to sack him. Find out how to get a top fixed rate mortgage deal at his site. With a mortgage overpayment calculator you could discover how to cut years off your mortgage.
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