If You Want To Move Home Avoid A Fixed Rate Mortgage
We are going to investigate what a fixed rate mortgage can do for you. We’ll then take a look at an overpayment calculator for your mortgage. 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. Because the interest rate is fixed, so are your monthly payments.
Do fixed rate mortgages have any plus points? Because your payments stay the same you don’t get ups and downs in your monthly payments. You get to budget easier every month as your payments remain the same.
Your payment is locked so it really doesn’t matter what the general rates are doing. In the not too distant past there have been some real scary 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. If you think you may move home, or even have another child and need an extra bedroom, then think carefully before taking a fixed rate mortgage. In situations like these you may need to redeem the mortgage and pay a hefty redemption penalty on the fixed rate mortgage.
Most fixed rate mortgages come tied to a nasty redemption penalty. These charges can be pretty steep, and come at a time when you don’t need the extra stress. Think hard before you take a fixed rate mortgage as these charges can really disrupt your plans.
It’s worth thinking about paying a bit extra each month in addition to whatever you normally pay. You don’t have to make the same payment month after month for 25 years. Lenders prefer you to make payments like this but they never inform you that you could pay extra if you wish.
What are the best reasons to paying a bit extra 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.
What do you do with a mortgage overpayment calculator? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You then enter any extra amount you can afford to pay. Or enter various value for fun.
You get a resulting figure out of the calculator in years you can shave off. It also tells you what sort of financial saving you can expect to make. Playing around with the actual overpayment figure can reveal that the more you can pay, the faster you finish your mortgage.
You may be surprised at some of the savings you can make. If you had a 25 year mortgage and borrowed 100 grand at 5% interest. You could save over twelve thousand and shorten the mortgage by more than 3 years just by paying an extra 50 each month.
That example is paying just 50 extra every month. What if you could afford 100 a month to overpay? Using the same example mortgage from earlier we now pay 100 extra. This saves you more than 20,000 and knocks a respectable 6 years off the term.
Another benefit is that for the last few years of the original (25 year) term, you don’t pay anything. It’s definitely a reality for you to be free of your mortgage years before planned. 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. You pay nothing more for the last 6 years of the term, which equates to about another 40 grand saved. This is money you can spend or save as it’s not going to your lender every month.
To recap we had a look at what benefit a fixed rate mortgage has for you. Every month you pay the same so you get to sleep easy at night knowing this. We also looked into the future and saw some big savings if you can make a little overpayment now.