Let’s find out just what a fixed rate mortgage is, and how it may benefit you. We’ll also take a peek at how much you could save with an overpayment calculator. Security comes with the fixed rate mortgage, whereas huge savings can come with the overpayment calculator.
Fixed rate mortgages are one of a few different types of mortgage available. A fixed period of interest that may be a couple or several years. The interest rate you pay is locked; therefore your monthly payments are also locked.
What are the advantages of a fixed rate mortgage? Your payment is fixed because your particular interest rate is fixed. You can estimate your outgoings simpler knowing your monthly payment is fixed.
It doesn’t matter how much interest rates rise, your payments are fixed. In our lifetime we have already seen some distressing interest rate rises. You may struggle to meet your payments if you have a variable mortgage and rates rise suddenly.
Under certain circumstances, a fixed rate mortgage could be a mistake. If you reckon you may go home, or even have another child and need an extra bedroom, then reckon carefully before taking a fixed rate mortgage. Either of these events will cause you to trigger an unwanted redemption penalty.
Fixed rate mortgages nearly always come bundled with a redemption penalty. These redemption penalties can hit you hard just when you don’t need it. These unexpected charges can hurt. Consider carefully whether a fixed rate is the one for you.
It’s worth thinking about paying a bit extra each month in addition to whatever you normally pay. You may not realise but you can pay any amount over the minimum monthly payment. It’s not often, if at all, that a lender will tell you it’s possible to pay more than your normal minimum monthly payment.
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. Not only do you save years, you can also save thousands and thousands of your hard earned money.
In what way does a mortgage overpayment calculator work? You can enter all the relevant figures from your particular deal. You then enter any extra amount you can afford to pay. Or enter various value for fun.
The calculator tells you how many years you will knock off. It will tell you what sort of cash lump sum you can expect to save 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. If you borrowed a hundred thousand at five percent over twenty five years. By paying an extra fifty each month could save you over 3 years and 12 thousand.
That example is paying just 50 extra every month. What if you could afford 100 a month to overpay? We’ll use the same mortgage example figures but pay 100 extra. You can knock a staggering 6 years or more off the length and save yourself in the region of 20 thousand.
Another plus point is the years you knock off are really payment free. By paying a small extra now, you could easily be mortgage free well before you ever expected. You will never hear this from your lender though; it’s simply not in their interests to tell you to pay off early.
If we go back to the extra 100 each month where we managed to shave six years off. No payments for 6 years means another 40 thousand saved in monthly payments. This saving is yours as you will never need to give it to your lender as you originally plotted.
In this article we’ve looked at the potential of fixed rate mortgages. Regular payments and a excellent night sleep. Also consider the huge potential in making a small overpayment every month. Even small amounts will add up.