Let’s find out just what a fixed rate mortgage is, and how it may benefit 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.
A fixed rate mortgage is one of the various types available. The interest rate is fixed, usually for a number of years. Because the interest rate is fixed, so are your monthly payments.
What are the advantages of a fixed rate mortgage? No need to worry about fluctuating interest rates. Your rate and your payments are fixed. You can estimate your outgoings simpler knowing your monthly payment is fixed.
No matter what the average interest rate is, your rate will stay the same. In the last few decades we have seen interest rates nearly double in a few small months. You may struggle to meet your payments if you have a variable mortgage and rates rise suddenly.
There can be certain circumstances when a fixed rate mortgage may not be right for you. You may choose you need to go house, or even have an unexpected child and simply need more room. In situations like these you may need to redeem the mortgage and pay a hefty redemption penalty on the fixed rate mortgage.
Fixed rate mortgages nearly always come bundled with a redemption penalty. These charges can be pretty steep, and come at a time when you don’t need the extra stress. If a charge like this will hurt you then you must reckon very carefully before taking a fixed rate mortgage.
A consideration during your mortgage term is to pay a bit extra each month on top of your normal payment. It’s not set in stone that you have to pay the same minimum amount every month. 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.
What are the best reasons to paying a bit extra every month? 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 overpayment calculators work? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You can enter a figure that you may reckon about paying as an extra payment each month.
The calculator tells you how many years you will knock 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 quicker you end your mortgage.
You may be amazed by how much you could save. As an example, borrow 100,000 at 5% over 25 years. Making an overpayment of 50 every month will save you 12,000 and knock over 3 years off.
The last example was an overpayment of 50 every month, but what happens if you pay 100 extra. Using the same figures in the mortgage but substituting 100 extra for the previous 50 extra. 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. It’s certainly a reality for you to be free of your mortgage years before plotted. Lenders will not tell you this, they like to keep this a secret.
In our example where we saved six years off the length with a hundred a month overpayment. We could save a further 40 thousand by not having to pay your lender every month. This is 40 grand in your pocket and not your lenders. Overpaying is hard, make no mistake, but the rewards can be incredible.
There you have a few benefits of going for a fixed rate mortgage. Every month you pay the same so you get to sleep simple at night knowing this. We also looked into the future and saw some huge savings if you can make a small overpayment now.