Let’s find out just what a fixed rate mortgage is, and how it may benefit you. We will also look into how a mortgage overpayment calculator might save you lots of cash. With the fixed rate mortgage comes security. With the mortgage overpayment calculator comes potential savings.
Of the various types of mortgage available, the fixed rate is only one of them. You get a fixed interest period for several years. Your interest rate, and therefore your payments are fixed.
What are the fixed rate mortgage excellent points? You benefit by not having the yo-yo effect on your monthly payments. They stay the same every month. You can plot your monthly spending simpler knowing your mortgage won’t go up unexpectedly.
Bank base rates may rise drastically, but yours will be the same because it’s fixed. In the last few decades we have seen interest rates nearly double in a few small months. If the rates rose drastically over a small term those on variable mortgages could struggle to meet payments.
Under certain circumstances, a fixed rate mortgage could be a mistake. Moving home in the next year or so. Having a plotted or even unplanned child can be reasons to avoid fixed rate mortgages. Any sort of situation like this can cause unexpected charges by way of redemption penalties.
Nearly all fixed rate mortgages have a redemption penalty attached. These redemption penalties can hit you hard just when you don’t need it. You must reckon twice before agreeing to a fixed rate deal if a charge like this will terribly affect 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.
If you do pay extra each month, are there any benefits to this? You can shave several years off your mortgage term by paying slightly more each month. Not only do you save years, you can also save thousands and thousands of your hard earned money.
How do you use a mortgage overpayment calculator? You can enter all the relevant figures from your particular deal. You can then play around by changing the figure you can afford to overpay.
You get a resulting figure out of the calculator in years you can shave off. It will tell you what sort of cash lump sum you can expect to save as well. Playing around with the actual overpayment figure can reveal that the more you can pay, the quicker you end your mortgage.
You may be surprised at some of the savings you can make. Quick example, 25 year mortgage borrowing 100,000 at 5%. 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.
If you can afford to pay 100 extra instead of 50 what would happen? 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.
Another plus point is the years you knock off are really payment free. Being mortgage free a few years early could easily be achieved by paying a bit extra now. You won’t hear this info from any lenders though. You need to learn info like this for yourself.
In the example where we paid an extra 100 every month and shortened the mortgage by six years. We could save a further 40 thousand by not having to pay your lender every month. You don’t pay this money to your lender so you get to keep it, either save it or spend it.
We’ve looked at some of the advantages of a fixed rate mortgage. You get to sleep simple in the knowledge your payment will stay the same month after month. Also consider the huge potential in making a small overpayment every month. Even small amounts will add up.