We’ll discover what the fixed rate mortgage is, and its benefits. We’ll then take a look at an overpayment calculator for your mortgage. From definite security with the fixed rate mortgage to potential cash saved 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. Because the interest rate is fixed, so are your monthly payments.
What, if any, are the up sides to fixed rate mortgages? Your payment is fixed because your particular interest rate is fixed. You get to budget easier every month as your payments remain the same.
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. 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. Either of these events will cause you to trigger an unwanted redemption penalty.
Nearly all fixed rate mortgages have a redemption penalty attached. These redemption penalties can hit you hard just when you don’t need it. You must think twice before agreeing to a fixed rate deal if a charge like this will badly affect you.
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. Lenders prefer you to make payments like this but they never inform you that you could pay extra if you wish.
What benefit does paying a bit extra each month have on you and your mortgage? 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 can enter all the relevant figures from your particular deal. 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 will tell you what sort of cash lump sum you can expect to save as well. Playing around with the actual overpayment figure can reveal that the more you can pay, the faster you finish your mortgage.
You may be amazed by how much you could save. If you had a 25 year mortgage and borrowed 100 grand at 5% interest. 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 example mortgage from earlier we now pay 100 extra. You can save 20 thousand in cash. You can also shorten your mortgage by more than 6 years.
One more advantage is that the years you save are payment free, nothing at all to pay. You could be free of the shackles of your mortgage early by paying a little more now. You never get info like this from your lender. This sort of stuff is kept quiet by the industry.
In our example where we saved six years off the length with a hundred a month overpayment. You pay nothing more for the last 6 years of the term, which equates to about another 40 grand saved. This is money you can spend or save as it’s not going to your lender every month.
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 had a look at the savings to be made by paying a bit extra every month. It all adds up.
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