Fixed Rate Mortgages - Are They Worth It?
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.
A fixed rate mortgage is one of the various types available. A fixed period of interest that may be a couple or several years. Because the interest rate is fixed, so are your monthly payments.
What, if any, are the up sides to fixed rate mortgages? Your payment is fixed because your particular interest rate is fixed. You get to budget easier every month as your payments remain the same.
No matter what the average interest rate is, your rate will stay the same. In the not too distant past there have been some real scary rate rises. A rapid rise over a year or so could really see payments rise for those on standard variable mortgages.
A fixed rate mortgage could be a mistake for you under certain circumstances. You may decide you need to move house, or even have an unexpected child and simply need more room. Either of these events will cause you to trigger an unwanted redemption penalty.
Most fixed rate mortgages come tied to a nasty redemption penalty. At a time when you least need it, you could get hit with a redemption penalty. 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 may not realise but you can pay any amount over the minimum monthly payment. It’s not often, if at all, that a lender will tell you it’s possible to pay more than your normal minimum monthly payment.
What benefit does paying a bit extra each month have on you and your mortgage? The extra payments reduce the sum owed quicker and the result is you save years off the term of your deal. Not only do you save years but you save piles of cash, usually many thousands.
What do you do with a mortgage overpayment calculator? Enter all the figures that relate to your mortgage. You then enter any extra amount you can afford to pay. Or enter various value for fun.
You get a resulting figure out of the calculator in years you can shave off. It will tell you what sort of cash lump sum you can expect to save as well. Playing around with the actual overpayment figure can reveal that the more you can pay, the faster you finish your mortgage.
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.
Nice savings on a 50 extra payment. But what happens if you pay an extra 100 though? Using the same example mortgage from earlier we now pay 100 extra. You can save 20 thousand in cash. You can also shorten your mortgage by more than 6 years.
Another plus point is the years you knock off are totally payment free. Being mortgage free a few years early could easily be achieved by paying a bit extra now. 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. You pay nothing more for the last 6 years of the term, which equates to about another 40 grand saved. This is money you can spend or save as it’s not going to your lender every month.
There you have a few benefits of going for a fixed rate mortgage. Not only do you get set monthly payments, you get to sleep easy at night because of it. We also had a look at the savings to be made by paying a bit extra every month. It all adds up.
May 27 2009 | Work at home | No Comments »
