Sleep Soundly With A Fixed Rate Mortgage
Well take a look at fixed rate mortgages and how they can be good for 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. Usually for a period of several years, you get a fixed rate of interest. Because the interest rate is fixed, so are your monthly payments.
Do fixed rate mortgages have any plus points? Your payment is fixed because your particular interest rate is fixed. You can estimate your outgoings easier knowing your monthly payment is fixed.
Your payment is locked so it really doesn’t matter what the general rates are doing. In our recent history there have been some frightening short term interest rate rises. Being on a variable rate leaves you susceptible to the rapid rise of your monthly payment.
There is a situation when maybe you should think twice about a fixed rate mortgage. You may decide you need to move house, or even have an unexpected child and simply need more room. Any sort of situation like this can cause unexpected charges by way of redemption penalties.
A redemption penalty is a charge that almost always comes with a fixed rate deal. You can get hit with a nasty charge when you are least expecting it. These unexpected charges can hurt. Consider carefully whether a fixed rate is the one for you.
A consideration during your mortgage term is to pay a bit extra each month on top of your normal payment. You don’t have to make the same payment month after month for 25 years. You lender will prefer you make the minimum payment and will never tell you it’s possible to pay extra.
If you do pay extra each month, are there any benefits to this? You can easily shave years of your mortgage. Be debt free much earlier. 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 also enter a figure that you want to overpay. You can play around with this figure.
You get to see what sort of length in years you can knock off. It also tells you what sort of financial saving you can expect to make. Both the years and cash saved obviously increase if you put in a higher overpayment figure.
There are astonishing amounts of savings to be had. Quick example, 25 year mortgage borrowing 100,000 at 5%. You could save over twelve thousand and shorten the mortgage by more than 3 years just by paying an extra 50 each month.
Nice savings on a 50 extra payment. But what happens if you pay an extra 100 though? Using the same example mortgage from earlier we now pay 100 extra. You can save 20 thousand in cash. You can also shorten your mortgage by more than 6 years.
Another plus point is the years you knock off are totally payment free. You could be free of the shackles of your mortgage early by paying a little more now. You will never hear this from your lender though; it’s simply not in their interests to tell you to pay off early.
If we go back to the extra 100 each month where we managed to shave six years off. No payments for 6 years means another 40 thousand saved in monthly payments. This saving is yours as you will never need to give it to your lender as you originally planned.
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 easy at night because of it. We also looked into the future and saw some big savings if you can make a little overpayment now.