Posts Tagged ‘fixed rate mortgage’

There are many great reasons to refinance. With lower cost, adjustable rate, and 0-down options, traditional loan programs like 30-year or 15-year fixed rate mortgages don’t always allow us to meet our financial goals. Today, even reducing your mortgage interest rate a little can save you big over the life of your home loan. Take a look below at some great reasons to refinance.

1. Lower Your Monthly Payment
If you plan to live in your home for a few years, it may make sense to pay a point or two to decrease your interest rate and overall payment. In the long run, you will have paid for the cost of the mortgage refinance with the monthly savings. On the other hand, if you plan on moving in the near future, you may not be in your home long enough to recover the refinancing costs. Calculating the break-even point before you decide to refinance can help determine whether it makes sense.

2. Switch From an Adjustable Rate to a Fixed Rate Mortgage
Adjustable rate mortgages (ARMs) can provide lower initial monthly payments for those who are willing to risk upward market adjustments. They’re also ideal if you don’t plan to own your property for more than a few years. However, if you have made your house a permanent home, you may want to swap your adjustable rate for a 15-, 20- or 30-year fixed rate mortgage. Your interest may be higher than with an ARM, but you have the confidence of knowing what your payment will be every month for the rest of your loan term.

3. Escape Balloon Payment Programs
Like adjustable rate mortgage programs, balloon programs are great when you want lower rates and lower initial monthly payments. However, if you still own the property at the end of the fixed rate term (usually 5 or 7 years), the entire balance of your mortgage is due to the lender. If you are in a balloon program, you can easily switch over into a new adjustable rate mortgage or fixed rate mortgage.

4. Remove Private Mortgage Insurance (PMI)
Zero or Low down payment options allow homeowners to purchase homes with less than 20% down. Unfortunately, they also usually require private mortgage insurance, which is designed to protect the lender from loan default. As the value of your home increases and the balance on your home decreases, you may be eligible to remove your PMI with a mortgage refinance loan.

5. Cash In on Your Home’s Equity
Your home is a great resource for extra cash. Like most homes, yours has probably increased in value, and that gives you the ability to take some of that cash and put it to good use. Pay off credit cards, make home improvements, pay tuition, replace your current car, or even take a long-overdue vacation. With a cash-out mortgage refinance transaction, it’s easy. And it’s even tax deductible.

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Many people will never realise the best investment ideas are usually the simple ones. You have to look for the greatest return but with a very low risk factor.

Try and disregard the current property downturn as historically house prices do increase quite dramatically over the years. Property investments can still be a good investment for you.

A good property investment relies on the old saying location, location, location. Some things never change and certainly location is the number one factor to consider.

Property prices usually double every ten years in the UK. You can make the most of your property investment knowing this. Property is a prime example of a simple idea being arguably the best investment idea.

Let me spell out a quick example. We’ll keep figures nice and round for ease of calculations. A house is bought for 150k and on average ten years later it should be worth around 300k.

If (in the above example) buying on a mortgage you should shop around for the best deals as even a little saving on your mortgage rate could mean a big cash saving. It’s always a great idea to have some cash at hand in case another great investment idea comes along.

**If you want to learn how to reduce your mortgage by years you can use our mortgage overpayment calculator and be shocked at the result**

OK, back to the article now.

Searching for a good mortgage can be time consuming but worth it in the long run if your investment idea is to be profitable. With property investment ideas a mortgage forms an important part of future profits.

A lot of fledgling investors get caught out by the rises and falls of the property market. They usually buy at a peak then when things turn sour, they rush to get rid. This is a guaranteed way to lose money and confidence.

Going back to the phrase, simple is usually best, you need a system to work from to maximise any chance of great returns. If you are looking at property, here’s a simple formula…Get in on a trough, get the best location you can, get the best mortgage rate you can, get the best management team you can to manage rentals.

For centuries it has been proven that the best ideas are the simplest with the wheel being a prime example. Don’t over complicate matters in your search for a good investment idea, after all simple is best. Click this link for some good investment ideas

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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.
From definite security with the fixed rate mortgage to potential cash saved with the overpayment calculator.

A fixed rate mortgage is a special type of mortgage where you have a fixed interest period.
The interest rate is fixed, usually for a number of years.
Your interest rate, and therefore your payments are fixed.

What are the advantages of a fixed rate mortgage?
You benefit by not having the yo-yo effect on your monthly payments. They stay the same every month.
You can estimate your outgoings easier knowing your monthly payment is fixed.

Your payment is locked so it really doesn’t matter what the general rates are doing.
In our lifetime we have already seen some distressing interest rate rises.
If the rates rose drastically over a short term those on variable mortgages could struggle to meet payments.

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.
Either of these events will cause you to trigger an unwanted redemption penalty.

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.
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 are not tied to make the same payments for the duration of the mortgage, usually 25 years.
The lenders would love you to do this but they will rarely tell you that you can indeed pay extra.

Are there any advantages to paying a bit extra each month?
If you consistently pay extra in the early years of your agreement you can knock several years off the length.
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 enter a figure that you may think about paying as an extra payment each month.

The calculator will show you how many years you can expect to shorten your mortgage by.
It also tells you what sort of financial saving you can expect to make.
Both the years and cash saved obviously increase if you put in a higher overpayment figure.

Some of the savings can be staggering.
Quick example, 25 year mortgage borrowing 100,000 at 5%.
By paying an extra fifty each month could save you over 3 years and 12 thousand.

The last example was an overpayment of 50 every month, but what happens if you pay 100 extra.
Using the same figures in the mortgage but substituting 100 extra for the previous 50 extra.
In this new example the time saved is over six years and the financial saving is more than twenty thousand.

Another plus point is the years you knock off are totally payment free.
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 go back to the extra 100 each month where we managed to shave six years off.
A six year saving translates into about a forty grand saving in cash.
This saving is yours as you will never need to give it to your lender as you originally planned.

To recap we had a look at what benefit a fixed rate mortgage has for you.
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.

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