Not As Good As Sex But Worth Giving A Fixed Rate Mortgage A Try
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.
There are a few different types of mortgage, the fixed rate being only one of them. You get your interest rate locked for the period of the deal, usually a few years. Because the interest rate is fixed, so are your monthly payments.
What, if any, are the up sides to fixed rate mortgages? No need to worry about fluctuating interest rates. Your rate and your payments are fixed. You can estimate your outgoings easier knowing your monthly payment is fixed.
It doesn’t matter how much interest rates rise, your payments are fixed. In the last few decades we have seen interest rates almost double in a few short months. People on variable rate mortgages are much more likely to be affected by rapid rises in interest rates.
There are a few situations when a fixed rate mortgage may be a bad decision. If you suddenly have an extra family member and need more space. Or you are simply considering moving home soon. Any situation which sees you changing mortgage can invoke a horrid redemption penalty on you.
Most fixed rate mortgages come tied to a nasty redemption penalty. You can get hit with a nasty charge when you are least expecting it. There is never a good time to be hit with extra charges so think carefully before taking the fixed rate mortgage.
One thing to consider while having the mortgage is to pay a bit extra every month if you can afford it. You are not tied to make the same payments for the duration of the mortgage, usually 25 years. 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 benefit does paying a bit extra each month have on you and your mortgage? You can easily shave years of your mortgage. Be debt free much earlier. Not only do you save years, you can also save thousands and thousands of your hard earned money.
How do overpayment calculators 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 will show you how many years you can expect to shorten your mortgage by. You get the expectant cash saving as well. Putting bigger figures in the overpayment box will show bigger 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.
Another benefit is that for the last few years of the original (25 year) term, you don’t pay anything. Being mortgage free a few years early could easily be achieved by paying a bit extra now. Of course your lender will never tell you this, you have to discover this on your own.
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. This is money you can spend or save as it’s not going to your lender every month.
There you have a few benefits of going for a fixed rate mortgage. You get to sleep easy in the knowledge your payment will stay the same month after month. We also had a look at the savings to be made by paying a bit extra every month. It all adds up.