The Time is Right for Fixed Rate Mortgages

By Monty Burn

Let's find out just what a fixed rate mortgage is, and how it may benefit you. We will also look into how a mortgage overpayment calculator might save you lots of cash. With the fixed rate mortgage comes security. With the mortgage overpayment calculator comes potential savings.

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.

Are there any benefits to a fixed rate mortgage? Your payment is fixed because your particular interest rate is fixed. You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.

It doesn't matter how much interest rates rise, your payments are fixed. In the last few decades we have seen interest rates almost double in a few short months. Being on a variable rate leaves you susceptible to the rapid rise of your monthly payment.

There are a few situations when a fixed rate mortgage may be a bad decision. Moving home in the next year or so. Having a planned or even unplanned child can be reasons to avoid fixed rate mortgages. Either of these events will cause you to trigger an unwanted redemption penalty.

Nearly all fixed rate mortgages have a redemption penalty attached. You can get hit with a nasty charge when you are least expecting it. You must think twice before agreeing to a fixed rate deal if a charge like this will badly affect you.

One thing to consider while having the mortgage is to pay a bit extra every month if you can afford it. You don't have to make the same payment month after month for 25 years. You lender will not tell you it's possible to pay extra as they prefer you just pay the minimum.

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 also save a lot of money in the process, sometimes a staggering amount.

How do you use a mortgage overpayment calculator? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. 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 will tell you what sort of cash lump sum you can expect to save as well. Putting bigger figures in the overpayment box will show bigger savings and even more time saved.

Some of the savings can be staggering. As an example, borrow 100,000 at 5% over 25 years. Making an overpayment of 50 every month will save you 12,000 and knock over 3 years off.

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. In this new example the time saved is over six years and the financial saving is more than twenty thousand.

An extra benefit is the years you save are free from any payment whatsoever. By paying a little extra now, you could easily be mortgage free well before you ever expected. You won't hear this info from any lenders though. You need to discover info like this for yourself.

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.

In this article we've looked at the potential of fixed rate mortgages. Every month you pay the same so you get to sleep easy at night knowing this. We also had a look at a mortgage overpayment calculator and the potential savings that can be had.

Monty Burn was once in charge of the Voluntary Mortgage Regulator. He was forced out because he was saving borrowers too much cash! Find out how to get the best fixed rate mortgage deal.

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