Fixed Rate Mortgage – Worth It Or Not?

by Monty Burn

We'll discover what the fixed rate mortgage is, and its benefits. We'll then take a look at an overpayment calculator for your mortgage. From definite security with the fixed rate mortgage to potential cash saved with the overpayment calculator.

Of the various types of mortgage available, the fixed rate is only one of them. You get a fixed interest period for several years. Your interest rate, and therefore your payments are fixed.

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.

Under certain circumstances, a fixed rate mortgage could be a mistake. Moving home in the next year or so. Having a planned or even unplanned child can be reasons to avoid fixed rate mortgages. Any sort of situation like this can cause unexpected charges by way of redemption penalties.

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.

One thing to consider while having the mortgage is to pay a bit extra every month if you can afford it. It's not set in stone that you have to pay the same minimum amount every month. Lenders prefer you to make payments like this but they never inform you that you could pay extra if you wish.

What are the best reasons to paying a bit extra every month? If you consistently pay extra in the early years of your agreement you can knock several years off the length. By paying a bit extra now, the savings mount up substantially later on.

What does a mortgage overpayment calculator do? It uses figures from your mortgage. Amount, interest rate, length of term etc. You can put various amounts in as the overpayment. Feel free to play around with this figure.

You get to see what sort of length in years you can knock off. You get the expectant cash saving as well. Both the years and cash saved obviously increase if you put in a higher overpayment figure.

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.

If you can afford to pay 100 extra instead of 50 what would happen? Using the same figures in the mortgage but substituting 100 extra for the previous 50 extra. You can knock a staggering 6 years or more off the length and save yourself in the region of 20 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. Lenders will not tell you this, they like to keep this a secret.

If we revisit the example where we knocked more than six years off the mortgage. A six year saving translates into about a forty grand saving in cash. You can do what you like with this extra as it never needs to be paid to your lender.

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.

About the Author:

Grab a FREE copy of Monty's Mortgage Bible, the book that caused the Voluntary Mortgage Regulator to sack him. Get a great fixed rate mortgage deal here. Maybe have a play with our mortgage overpayment calculator and shock yourself at how much cash you could save.