We’ll discover what the fixed rate mortgage is, and its benefits.
We’ll also take a peek at how much you could save with an overpayment calculator.
The fixed rate gives you security for a while & the overpayment calculator might give you a pleasant surprise.
A fixed rate mortgage is a special type of mortgage where you have a fixed interest period.
You get a fixed interest period for several years.
If the interest rate remains static, so do your monthly payments.
What, if any, are the up sides to fixed rate mortgages?
A fixed rate of interest means a fixed monthly mortgage payment.
You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.
No matter what the average interest rate is, your rate will stay the same.
In our lifetime we have already seen some distressing interest rate rises.
Being on a variable rate leaves you susceptible to the rapid rise of your monthly payment.
There are a few situations when a fixed rate mortgage may be a bad decision.
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.
You can get hit with a nasty charge when you are least expecting it.
You must think twice before agreeing to a fixed rate deal if a charge like this will badly affect you.
During the term of your mortgage it’s worth considering paying a bit extra each month if your budget will stretch.
You don’t have to make the same payment month after month for 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?
Topping up your monthly minimum payment means you can knock a few years of the length of your mortgage.
You can save a shedload of cash as well as knock a few years off.
How do mortgage overpayment calculators work?
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.
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.
The figures in years and cash saved will increase the more you overpay each month.
You might be pleasantly surprised at the savings to be made.
As an example, borrow 100,000 at 5% over 25 years.
Making an overpayment of 50 every month will save you 12,000 and knock over 3 years off.
The last example was an overpayment of 50 every month, but what happens if you pay 100 extra.
Paying 100 extra every month using the same example mortgage.
This saves you more than 20,000 and knocks a respectable 6 years off the term.
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.
In our example where we saved six years off the length with a hundred a month overpayment.
No payments for 6 years means another 40 thousand saved in monthly payments.
This is 40 grand in your pocket and not your lenders. Overpaying is difficult, make no mistake, but the rewards can be amazing.
In conclusion we listed a few benefits of a fixed rate mortgage.
Regular payments and a good night sleep.
We also had a look at a mortgage overpayment calculator and the potential savings that can be had.
