To Fix Your Mortgage Or Not – Today’s Big Question
September 9th, 2009
Experts say choosing how long to fix a mortgage or whether to fix it at all depends on how much risk you want to take, the degree of certainty you want in knowing what payments will be, and how much you can afford.
But actively managing your mortgage, and choosing the best rates for your situation, can potentially shave thousands off interest costs.
John Bolton from Squirrel Mortgages believes it’s now best to split a mortgage into pieces, fixing chunks for a range of terms at the varying interest rates. He says using a series of short fixed-term rates could be the best value. Example: a homeowner with a $400,000 mortgage could save up to $32,000 in interest over five years by using a series of one-year rates rather than fixing at a five-year term, which is almost 3% higher.
This is based on Bolton’s belief interest rates will rise, but not quickly. Even using a more conservative model where rates rise quickly, he thinks mortgage holders could still save thousands. Bolton says many people chose to fix at long-term rates to provide certainty, but even doing so doesn’t mean completely escaping potential interest rate rises. One way to avoid this is to budget to pay around 8% and when interest rates are lower simply pay off your loan faster.
For more information on Bolton’s calculations see:
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