Let’s find out just what a fixed rate mortgage is, and how it may benefit you. We will also look into how a mortgage overpayment calculator might save you lots of cash. You get security from the fixed rate mortgage & you may get a nice surprise from 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. If the interest rate remains static, so do your monthly payments.
Are there any benefits to a fixed rate mortgage? You benefit by not having the yo-yo effect on your monthly payments. They stay the same every month. You can estimate your outgoings easier knowing your monthly payment is fixed.
Bank base rates may rise drastically, however yours will be the same because it’s fixed. In our lifetime we have already seen some distressing interest rate rises. 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 bad decision. Moving home in the next year or so. Having a planned 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.
Nearly all fixed rate mortgages have a redemption penalty attached. At a time when you least need it, you could get hit with a redemption penalty. You must think twice before agreeing to a fixed rate deal if a charge like this will badly affect you.
You might like to think about paying a small extra overpayment each month as you go through the length of your mortgage. 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 are the up sides to paying extra each and every month? 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.
What does a mortgage overpayment calculator do? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You can put various amounts in as the overpayment. Feel free to play around with this figure.
The calculator will then tell you how many years you might reduce your mortgage by. 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.
There are astonishing amounts of savings to be had. If you had a 25 year mortgage and borrowed 100 grand at 5% interest. If you pay an extra fifty each month, you can shave more than 3 years off the length and save 12,000 in interest payments.
Nice savings on a 50 extra payment. But what happens if you pay an extra 100 though? 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. By paying a little extra now, you could easily be mortgage free well before you ever expected. Of course your lender will never tell you this, you have to discover this on your own.
If we look at the example where we paid 100 extra and knocked over 6 years off the length. This shortening of the mortgage by six years saves you another 40,000 or more. You can do what you like with this extra as it never needs to be paid to your lender.
In conclusion we listed a few benefits of a fixed rate mortgage. Every month you pay the same so you get to sleep easy at night knowing this. We also had a look at a mortgage overpayment calculator and the potential savings that can be had.
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