We’ll have a look at what benefits there are to a fixed rate mortgage for 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.
There are a few different types of mortgage, the fixed rate being only one of them. You get a fixed interest period for 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 estimate your outgoings easier knowing your monthly payment is fixed.
Your payment is locked so it really doesn’t matter what the general rates are doing. 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.
A fixed rate mortgage could be a mistake for you under certain circumstances. If you think you may move home, or even have another child and need an extra bedroom, then think carefully before taking a fixed rate mortgage. Any sort of situation like this can cause unexpected charges by way of redemption penalties.
Fixed rate mortgages usually come with charges called redemption penalties. These charges can be pretty steep, and come at a time when you don’t need the extra stress. Think hard before you take a fixed rate mortgage as these charges can really disrupt your plans.
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. You lender will not tell you it’s possible to pay extra as they prefer you just pay the minimum.
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.
How do you use a mortgage overpayment calculator? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You can then play around by changing the figure you can afford to overpay.
The calculator will then tell you how many years you might reduce your mortgage by. It will tell you what sort of cash lump sum you can expect to save as well. Both the years and cash saved obviously increase if you put in a higher overpayment figure.
You might be pleasantly surprised at the savings to be made. If we take a mortgage of 100,000 borrowed over 25 years and assume you get an average 5% interest rate. Making an overpayment of 50 every month will save you 12,000 and knock over 3 years off.
If you can afford to pay 100 extra instead of 50 what would happen? The same mortgage example but paying 100 extra every month. In this new example the time saved is over six years and the financial saving is more than twenty thousand.
Another benefit is that for the last few years of the original (25 year) term, you don’t pay anything. Being mortgage free a few years early could easily be achieved by paying a bit extra now. You won’t hear this info from any lenders though. You need to discover info like this for yourself.
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 saving is yours as you will never need to give it to your lender as you originally planned.
There you have a few benefits of going for a fixed rate mortgage. Not only do you get set monthly payments, you get to sleep easy at night because of it. We also looked into the future and saw some big savings if you can make a little overpayment now.
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