Benefits Of A Fixed Rate Mortgage
Posted on May 24, 2009 in the Mortgages category
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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. With the fixed rate mortgage comes security. With the mortgage overpayment calculator comes potential savings.
Fixed rate mortgages are one of a few different types of mortgage available. You get your interest rate locked for the period of the deal, usually a few years. Your interest rate, and therefore your payments are fixed.
Do fixed rate mortgages have any plus points? Because your payments stay the same you don’t get ups and downs in your monthly payments. You get to budget easier every month as your payments remain the same.
Your payment is locked so it really doesn’t matter what the general rates are doing. In the last few decades we have seen interest rates almost double in a few short months. If the rates rose drastically over a short term those on variable mortgages could struggle to meet payments.
There can be certain circumstances when a fixed rate mortgage may not be right for you. The arrival of a new child could mean you need a bigger home and need to move. These are reasons to avoid fixed rate mortgages. In situations like these you may need to redeem the mortgage and pay a hefty redemption penalty on the fixed rate mortgage.
A redemption penalty is a charge that almost always comes with a fixed rate deal. 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.
It’s worth thinking about paying a bit extra each month in addition to whatever you normally pay. You may have a fixed rate but it doesn’t mean your payments have to be fixed if you can afford extra. You lender will prefer you make the minimum payment and will never tell you it’s possible to pay extra.
What are the up sides to paying extra each and every month? You can shave several years off your mortgage term by paying slightly more each month. You can save a shedload of cash as well as knock a few years off.
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.
You get to see what sort of length in years you can knock off. It also tells you what sort of financial saving you can expect to make. 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. If you borrowed a hundred thousand at five percent over twenty five years. 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.
That example is paying just 50 extra every month. What if you could afford 100 a month to overpay? 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. 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.
If we revisit the example where we knocked more than six years off the mortgage. This shortening of the mortgage by six years saves you another 40,000 or more. This is 40 grand in your pocket and not your lenders. Overpaying is difficult, make no mistake, but the rewards can be amazing.
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 looked into the future and saw some big savings if you can make a little overpayment now.
Related Posts:
- The Many Options of a Chase Home Mortgage
- Choosing a Fixed or ARM Option - Part 1
- Choosing a Fixed or ARM Option - Part 2
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203 Responses to “Benefits Of A Fixed Rate Mortgage”
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Thus…the problem.
Great article.
Thanks…
Of course overpayments are not restricted just to Fixed Rate mortgages, but that’s by the by.
Here’s how I like to look at the difference between fixed- and variable-rate mortgages: fixed rate lets you know where you are at all times, and is suited to the more risk averse amongst us.
Variable rates can rise and fall with the markets — and your payments go with them — so may work well in some climates. These are for the more risky among us.
By the way, a long-term fixed rate is another reason why I prefer 1-4 unit investment properties over commercial properties. You just can’t get a fully-amortizing 30 year fixed rate with a commercial loan. What will you do if the interest rates spike up?
Finally, the idea of making extra payments is not bad — and is certainly better than signing up for a 15 year loan. Many people forget that they can always shorten their loan term by making extra payments — but they can only lengthen the term if the lender agrees. If they’ve lost their job in the meantime, they can forget about it.
Very nice post.I got some useful information here.
Thanks for the sharing.
Outside the United States, fixed-rate mortgages are less popular, and in some countries, true fixed-rate mortgages are not available except for shorter-term loans. For example, in Canada the longest term for which a mortgage rate can be fixed is typically no more than ten years, while mortgage maturities are commonly 25 years. In Australia banks are unable to offer fixed rates for terms longer than 15 years due to funding constraints and market collusion at the big end of town.
Fixed rate mortgage, I need it. And I think every people also need it…….
Thanks for the article.
Thanks for your post.
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My mortgage is up for renewal soon and this has helped me become a little bit more knoewledgeable about the whole process!
Thanks
Thanks for sharing! I will keep it!
I liked fixed rates and terms because you always know what you are obligated for - no surprises. You also then have the flexibility to manage the loan how you see fit.
I would like to add that with any loan, you take the longest term avaliable. This way, you have a lower payment for those months when cash is tight but you can always reduce the term by adding extra principle when you have the extra cash. e.g. a 15 year loan your payment is set at $1,000. Thus, you must pay $1,000 every month. A 30 year loan - your payment is at say $700 per month. If you have the extra cash pay the $1,000 like the 15 year loan - but, if you have a tight month, you only have to pay the $700.
Are there growth of demand?
Thanks so much
the best benefit is see is it’s Inflation proof and i can plan my long term investment without worrying about variable interest rates. I have Much lower risk Your monthly mortgage payment will be the same, regardless of what current interest rates are
Regards Lisa
It would seem that so many never understand that simple point.
Good post.
Regards
adam
Thank you for your efforts
Having a UK fixed rate mortgage means the interest rate depending upon the fixed rate products available at the time, you will pay is set for a specified period. You can fix the rate for up to five years, however you may prefer to fix for two or three years. Once the fixed rate period is at an end, your repayments will revert to our standard variable rate.
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Yeah you are absolutely right. No one in the world can spend more than he earns one the long run. That’s what banks have noticed now and in my eyes the system of mortgage loans has absolutely changed!
Thanks,
Leo
Those on a tight budget or a fixed income can benefit from a fixed rate mortgage because of its static nature.
I used to tell clients: If you can’t get a fixed rate, you may want to wait.
But, this was back when they knew they could call any Joe Schmoe mortgage guy and get a loan, so usually we’d end up agreeing on an ARM of some sort (as long as it still “made sense” for them.)
I was looking for a long time for something like this!
I’m also of the mind that easily available credit has caused the real estate market prices to soar to a point where the entire market is 300-400% over priced and the bubble is bursting and will continue to deflate for at least the next 5 years until prices come back down to a reasonable level before international fraudsters took the market between the teeth and ran with it and engaged in a orgy of profit taking.
I’m a person who lives within their means and with real estate as over priced as it is today I would not advice purchasing anything at today’s prices because I have a strong opinion that the value of what you purchase today will be 1/2 that value in 5 years.
if you search the internet i was posting under a few names last year in early 2008 and taking about the market taking a fall and prices dipping 25% at a minimum. This is happened already and with the federal government getting ready to get out of the proping up market prices will again start to fall and continue until they level out to what the average American can afford with their new lower paying jobs.
The new idea is if you can’t afford it on a 2 income salary equal to what you can earn at Walmart working 35 hours a week, then its not going to sell very well.
You can laugh at me if you want, but I have not been wrong in the past year and a half with my predictions about the economy.
I know that there are some unique situations or exceptions but overall the fixed rate is the best for all. After all if you look at what got this country in the bind its in the variable rate loans is one big reason without a doubt!
The question is what are the feds going to do to get is out of the mess they have allowed to be created by allowing these loans to take place in the first place!
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I recently bought my first property and got a reasonable deal when I took it out pre recession.
Just thought I’d let you know that your site looks kinda’ weird in my web browser. I’m running flock browser on a teeny-tiny netbook screen so thats probz whats causing it. Probably not an issue for most people but I thought you might want to know.