Let’s find out just what a fixed rate mortgage is, and how it may benefit you. Then prepare to be amazed at the savings made with a mortgage overpayment calculator. From certain security with the fixed rate mortgage to potential cash saved with the overpayment calculator.
Fixed rate mortgages are one of a few different types of mortgage available. You get your interest rate locked for the period of the deal, usually a few years. Your interest rate, and therefore your payments are fixed.
Are there any benefits to a fixed rate mortgage? Your payment is fixed because your particular interest rate is fixed. You can estimate your outgoings simpler knowing your monthly payment is fixed.
Your payment is locked so it really doesn’t matter what the general rates are doing. In the last few decades we have seen interest rates nearly double in a few small months. If the rates rose drastically over a small term those on variable mortgages could struggle to meet payments.
There are a few situations when a fixed rate mortgage may be a terrible choice. If you suddenly have an extra family member and need more space. Or you are simply considering moving home soon. These types of situations could invoke a nasty redemption penalty on your fixed rate mortgage.
Fixed rate mortgages usually come with charges called redemption penalties. These charges can be pretty steep, and come at a time when you don’t need the extra stress. Reckon hard before you take a fixed rate mortgage as these charges can really disrupt your plans.
During the term of your mortgage it’s worth considering paying a bit extra each month if your budget will stretch. You don’t have to make the same payment month after month for 25 years. You lender will not tell you it’s possible to pay extra as they prefer you just pay the minimum.
If you do pay extra each month, are there any benefits to this? The extra payments reduce the sum owed quicker and the result is you save years off the term of your deal. Not only do you save years but you save piles of cash, usually many thousands.
In what way does a mortgage overpayment calculator work? Enter all the figures that relate to your mortgage. You then enter any extra amount you can afford to pay. Or enter various value for fun.
The calculator will then tell you how many years you might reduce your mortgage by. It will tell you what sort of cash lump sum you can expect to save as well. Both the years and cash saved obviously increase if you place in a higher overpayment figure.
You might be pleasantly surprised at the savings to be made. If we take a mortgage of 100,000 borrowed over 25 years and assume you get an average 5% interest rate. Making an overpayment of 50 every month will save you 12,000 and knock over 3 years off.
That example is paying just 50 extra every month. What if you could afford 100 a month to overpay? Using the same figures in the mortgage but substituting 100 extra for the previous 50 extra. You can knock a staggering 6 years or more off the length and save yourself in the region of 20 thousand.
An extra benefit is the years you save are free from any payment whatsoever. Being free of your mortgage chains a few years early is a certain reality if you can pay extra now. Of course your lender will never tell you this, you have to learn this on your own.
In our example where we saved six years off the length with a hundred a month overpayment. 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 plotted.
There you have a few benefits of going for a fixed rate mortgage. Not only do you get set monthly payments, you get to sleep simple at night because of it. We also looked into the future and saw some huge savings if you can make a small overpayment now.