Let’s find out just what a fixed rate mortgage is, and how it may benefit you. We’ll then look at using a mortgage overpayment calculator. Security comes with the fixed rate mortgage, whereas huge savings can come with the overpayment calculator.
A fixed rate mortgage is one of the various types available. You get a fixed interest period for several years. If the interest rate remains static, so do your monthly payments.
What are the advantages of 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 simpler to plot financially knowing your payment will be the same.
If the bank base interest rate starts to rise, yours will stay as it is. 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.
A fixed rate mortgage could be a mistake for you under certain circumstances. You may choose you need to go house, or even have an unexpected child and simply need more room. 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. When you can least afford it you could have a charge slapped on you. If a charge like this will hurt you then you must reckon 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. It’s not set in stone that you have to pay the same minimum amount every month. Lenders prefer you to make payments like this but they never inform you that you could pay extra if you wish.
What are the up sides to paying extra each and every month? The extra payments reduce the sum owed quicker and the result is you save years off the term of your deal. You also save a lot of money in the process, sometimes a staggering amount.
How do you use a mortgage overpayment calculator? It uses figures from your mortgage. Amount, interest rate, length of term etc. You can enter a figure that you may reckon about paying as an extra payment each month.
The calculator will show you how many years you can expect to shorten your mortgage by. You get the expectant cash saving as well. Putting larger figures in the overpayment box will show larger savings and even more time saved.
You may be amazed by how much you could save. If you had a 25 year mortgage and borrowed 100 grand at 5% interest. Making an overpayment of 50 every month will save you 12,000 and knock over 3 years off.
If you can afford to pay 100 extra instead of 50 what would happen? Paying 100 extra every month using the same example mortgage. This saves you more than 20,000 and knocks a respectable 6 years off the term.
An extra benefit is the years you save are free from any payment whatsoever. By paying a small extra now, you could easily be mortgage free well before you ever expected. You never get info like this from your lender. This sort of stuff is kept silent by the industry.
In our example where we saved six years off the length with a hundred a month overpayment. A six year saving translates into about a forty grand saving in cash. This is 40 grand in your pocket and not your lenders. Overpaying is hard, make no mistake, but the rewards can be incredible.
We’ve looked at some of the advantages of a fixed rate mortgage. Not only do you get set monthly payments, you get to sleep simple at night because of it. We also looked into the future and saw some huge savings if you can make a small overpayment now.