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.
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. It’s a lot easier to plan financially knowing your payment will be the same.

Bank base rates may rise drastically, however yours will be the same because it’s fixed. In the last few decades we have seen interest rates almost double in a few short months. You may struggle to meet your payments if you have a variable rate mortgage and rates rise suddenly.

A fixed rate mortgage could be a mistake for you under certain circumstances. Moving home in the next year or so. Having a planned or even unplanned child can be reasons to avoid fixed rate mortgages. These types of situations could invoke a nasty redemption penalty on your fixed rate mortgage.

Fixed rate mortgages usually come with charges called redemption penalties. 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.

During the term of your mortgage it’s worth considering paying a bit extra each month if your budget will stretch. It’s not set in stone that you have to pay the same minimum amount every month. You lender will prefer you make the minimum payment and will never tell you it’s possible to pay extra.

If you do pay extra each month, are there any benefits to this? If you consistently pay extra in the early years of your agreement you can knock several years off the length. Not only do you save years, you can also save thousands and thousands of your hard earned money.

How do mortgage overpayment calculators work? Enter all the figures that relate to your mortgage. You also enter a figure that you want to overpay. You can play around with this figure.

The calculator will show you how many years you can expect to shorten your mortgage by. You get the expectant cash saving as well. The figures in years and cash saved will increase the more you overpay each month.

You may be surprised at some of the savings you can make. 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. This saves you more than $20,000 and knocks a respectable 6 years off the term.

An extra advantage is you won’t have any payments to make during the last few years of the mortgage. Being free of your mortgage chains a few years early is a definite reality if you can pay extra now. Of course your lender will never tell you this, you have to discover this on your own.

In our example where we saved six years off the length with a hundred a month overpayment. We could save a further 40 thousand by not having to pay your lender every month. 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 had a look at the savings to be made by paying a bit extra every month. It all adds up.

This has been a Guest Author Submission.
Opinions expressed by Guest Authors do not necessarily reflect
the opinions of the owner/operator of ImperfectYou.com

Warmest regards,

SherryD