Let’s find out just what a fixed rate mortgage is, and how it may benefit you. We’ll then look at using a mortgage overpayment calculator. With the fixed rate mortgage comes security. With the mortgage overpayment calculator comes potential savings.
A fixed rate mortgage is a special type of mortgage where you have a fixed interest period. The interest rate is fixed, usually for a number of years. Locked in interest rates mean locked in monthly payments.
Do fixed rate mortgages have any plus points? No need to worry about fluctuating interest rates. Your rate and your payments are fixed. You can estimate your outgoings easier knowing your monthly payment is fixed.
No matter what the average interest rate is, your rate will stay the same. There have been some alarming short term interest rate rises in our recent history. 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. You may decide you need to move house, or even have an unexpected child and simply need more room. Any sort of situation like this can cause unexpected charges by way of redemption penalties.
Most fixed rate mortgages come tied to a nasty redemption penalty. At a time when you least need it, you could get hit with a redemption penalty. Think hard before you take a fixed rate mortgage as these charges can really disrupt your plans.
A consideration during your mortgage term is to pay a bit extra each month on top of your normal payment. You don’t have to make the same payment month after month for 25 years. You lender will not tell you it’s possible to pay extra as they prefer you just pay the minimum.
What are the best reasons to paying a bit extra every month? You can easily shave years of your mortgage. Be debt free much earlier. By paying a bit extra now, the savings mount up substantially later on.
How do you use a mortgage overpayment calculator? You input various figures relating to your mortgage. You also enter a figure that you want to overpay. You can 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. Putting bigger figures in the overpayment box will show bigger savings and even more time saved.
You might be pleasantly surprised at the savings to be made. If you borrowed a hundred thousand at five percent over twenty five years. 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.
If you can afford to pay 100 extra instead of 50 what would happen? Paying 100 extra every month using the same example mortgage. In this new example the time saved is over six years and the financial saving is more than twenty thousand.
An extra advantage is you won’t have any payments to make during the last few years of the mortgage. It’s definitely a reality for you to be free of your mortgage years before planned. Of course your lender will never tell you this, you have to discover this on your own.
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. You don’t pay this money to your lender so you get to keep it, either save it or spend it.
There you have a few benefits of going for a fixed rate mortgage. You get a good night’s sleep and regular level payments. Also consider the huge potential in making a little overpayment every month. Even small amounts will add up.
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