We’ll have a look at what benefits there are to a fixed rate mortgage for you.
Then prepare to be amazed at the savings made with a mortgage overpayment calculator.
You get security from the fixed rate mortgage & you may get a nice surprise from the overpayment calculator.
A fixed rate mortgage is one of the various types available.
You get your interest rate locked for the period of the deal, usually a few years.
Because the interest rate is fixed, so are your monthly payments.
What are the fixed rate mortgage good points?
You benefit by not having the yo-yo effect on your monthly payments. They stay the same every month.
You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.
Your payment is locked so it really doesn’t matter what the general rates are doing.
In our lifetime we have already seen some distressing interest rate rises.
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.
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 situation which sees you changing mortgage can invoke a horrid redemption penalty on you.
Nearly all fixed rate mortgages have a redemption penalty attached.
These redemption penalties can hit you hard just when you don’t need it.
If a charge like this will hurt you then you must think very carefully before taking a fixed rate mortgage.
It’s worth thinking about paying a bit extra each month in addition to whatever you normally pay.
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.
Are there any advantages to paying a bit extra each month?
You can shave several years off your mortgage term by paying slightly more each month.
By paying a bit extra now, the savings mount up substantially later on.
What do you do with a mortgage overpayment calculator?
Enter all the figures that relate to your mortgage.
You can enter a figure that you may think about paying as an extra payment each month.
The calculator tells you how many years you will knock off.
It also tells you what sort of financial saving you can expect to make.
Playing around with the actual overpayment figure can reveal that the more you can pay, the faster you finish your mortgage.
You might be pleasantly surprised at the savings to be made.
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.
The last example was an overpayment of 50 every month, but what happens if you pay 100 extra.
We’ll use the same mortgage example figures but pay 100 extra.
You can save 20 thousand in cash. You can also shorten your mortgage by more than 6 years.
An extra advantage is you won’t have any payments to make during the last few years of the mortgage.
By paying a little extra now, you could easily be mortgage free well before you ever expected.
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 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 40 grand in your pocket and not your lenders. Overpaying is difficult, make no mistake, but the rewards can be amazing.
There you have a few benefits of going for a fixed rate mortgage.
You get to sleep easy in the knowledge your payment will stay the same month after month.
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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