We are going to investigate what a fixed rate mortgage can do for you. We’ll then take a look at an overpayment calculator for your mortgage. From definite 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. The interest rate is fixed, usually for a number of years. The interest rate you pay is locked; therefore your monthly payments are also locked.
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.
Under certain circumstances, a fixed rate mortgage could be a mistake. 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.
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.
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.
What do you do with a mortgage overpayment calculator? It uses figures from your mortgage. Amount, interest rate, length of term etc. You then enter any extra amount you can afford to pay. Or enter various value for fun.
You get a resulting figure out of the calculator in years you can shave off. You get to see how much money you could possibly save. The figures in years and cash saved will increase the more you overpay each month.
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 benefit is that for the last few years of the original (25 year) term, you don’t pay anything. Being free of your mortgage chains a few years early is a definite reality if you can pay extra 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 look at the example where we paid 100 extra and knocked over 6 years off the length. We could save a further 40 thousand by not having to pay your lender every month. This is 40 grand in your pocket and not your lenders. Overpaying is difficult, make no mistake, but the rewards can be amazing.
We’ve looked at some of the advantages of a fixed rate mortgage. Regular payments and a good night sleep. We also looked at potential savings by paying extra each month. Every little helps.
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