We’ll learn what the fixed rate mortgage is, and its benefits. Then prepare to be amazed at the savings made with a mortgage overpayment calculator. The fixed rate gives you security for a while & the overpayment calculator might give you a pleasant surprise.
Of the various types of mortgage available, the fixed rate is only one of them. Usually for a period of several years, you get a fixed rate of interest. Locked in interest rates mean locked in monthly payments.
Are there any benefits to a fixed rate mortgage? Your payment is fixed because your particular interest rate is fixed. You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.
Bank base rates may rise drastically, but yours will be the same because it’s fixed. There have been some alarming small term interest rate rises in our recent history. You may struggle to meet your payments if you have a variable mortgage and rates rise suddenly.
There are a few situations when a fixed rate mortgage may be a terrible choice. Moving home in the next year or so. Having a plotted or even unplanned child can be reasons to avoid fixed rate mortgages. Either of these events will cause you to trigger an unwanted redemption penalty.
Fixed rate mortgages nearly always come bundled with a redemption penalty. These redemption penalties can hit you hard just when you don’t need it. If a charge like this will hurt you then you must reckon very carefully before taking a fixed rate mortgage.
During the term of your mortgage it’s worth considering paying a bit extra each month if your budget will stretch. You may not realise but you can pay any amount over the minimum monthly payment. You lender will prefer you make the minimum payment and will never tell you it’s possible to pay extra.
What are the best reasons to paying a bit extra every month? 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 you use a mortgage overpayment calculator? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You can then play around by changing the figure you can afford to overpay.
You get to see what sort of length in years you can knock off. It also gives you a figure in cash that you can expect to save. The figures in years and cash saved will increase the more you overpay each month.
Some of the savings can be staggering. 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.
Nice savings on a 50 extra payment. But what happens if you pay an extra 100 though? Paying 100 extra every month using the same example mortgage. 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. 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. A six year saving translates into about a forty grand saving in cash. You can do what you like with this extra as it never needs to be paid to your lender.
We’ve looked at some of the advantages of a fixed rate mortgage. Regular payments and a excellent night sleep. We also looked into the future and saw some huge savings if you can make a small overpayment now.