We’ll discover what the fixed rate mortgage is, and its benefits.
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.
A fixed rate mortgage is one of the various types available.
A fixed period of interest that may be a couple or several years.
The interest rate you pay is locked; therefore your monthly payments are also locked.
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, however yours will be the same because it’s fixed.
In the last few decades we have seen interest rates almost double in a few short months.
You may struggle to meet your payments if you have a variable mortgage and rates rise suddenly.
There is a situation when maybe you should think twice about a fixed rate mortgage.
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.
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.
There is never a good time to be hit with extra charges so think carefully before taking the fixed rate mortgage.
One thing to consider while having the mortgage is to pay a bit extra every month if you can afford it.
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?
You can shave several years off your mortgage term by paying slightly more each month.
You also save a lot of money in the process, sometimes a staggering amount.
How do you use a mortgage overpayment calculator?
You input various figures relating to your mortgage.
You can then play around by changing the figure you can afford to overpay.
You get a resulting figure out of the calculator in years you can shave 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.
You may be amazed by how much you could save.
Quick example, 25 year mortgage borrowing 100,000 at 5%.
By paying an extra fifty each month could save you over 3 years and 12 thousand.
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.
You can knock a staggering 6 years or more off the length and save yourself in the region of 20 thousand.
One more advantage is that the years you save are payment free, nothing at all to pay.
By paying a little extra now, you could easily be mortgage free well before you ever expected.
You never get info like this from your lender. This sort of stuff is kept quiet by the industry.
If we go back to the extra 100 each month where we managed to shave six years off.
This shortening of the mortgage by six years saves you another 40,000 or more.
You don’t pay this money to your lender so you get to keep it, either save it or spend it.
In conclusion we listed a few benefits of a fixed rate mortgage.
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.
