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.
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. Your interest rate, and therefore your payments are fixed.
Are there any benefits to a fixed rate mortgage? A fixed rate of interest means a fixed monthly mortgage payment. It’s a lot easier to plan financially knowing your payment will be the same.
If the bank base interest rate starts to rise, yours will stay as it is. In the last few decades we have seen interest rates almost double in a few short months. If the rates rose drastically over a short term those on variable mortgages could struggle to meet payments.
A fixed rate mortgage could be a mistake for you under certain circumstances. The arrival of a new child could mean you need a bigger home and need to move. These are reasons to avoid fixed rate mortgages. Any sort of situation like this can cause unexpected charges by way of redemption penalties.
Fixed rate mortgages nearly always come bundled with a redemption penalty. At a time when you least need it, you could get hit with a redemption penalty. There is never a good time to be hit with extra charges so think carefully before taking the fixed rate mortgage.
During the term of your mortgage it’s worth considering paying a bit extra each month if your budget will stretch. It’s not set in stone that you have to pay the same minimum amount every month. The lenders would love you to do this but they will rarely tell you that you can indeed pay extra.
What are the up sides to paying extra each and every month? Topping up your monthly minimum payment means you can knock a few years of the length of your mortgage. By paying a bit extra now, the savings mount up substantially later on.
How do overpayment calculators work? Enter all the figures that relate to your mortgage. 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. 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 surprised at some of the savings you can make. If you had a 25 year mortgage and borrowed 100 grand at 5% interest. 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? We’ll use the same mortgage example figures but pay 100 extra. 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 totally payment free. By paying a little extra now, you could easily be mortgage free well before you ever expected. Lenders will not tell you this, they like to keep this a secret.
If we revisit the example where we knocked more than six years off the mortgage. This shortening of the mortgage by six years saves you another 40,000 or more. This is money you can spend or save as it’s not going to your lender every month.
In this article we’ve looked at the potential of fixed rate mortgages. You get a good night’s sleep and regular level payments. We also had a look at the savings to be made by paying a bit extra every month. It all adds up.
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