We are going to investigate what a fixed rate mortgage can do for you. We’ll then take a look at an overpayment calculator for your mortgage. Security comes with the fixed rate mortgage, whereas huge savings can come with the overpayment calculator.
Of the various types of mortgage available, the fixed rate is only one of them. You get your interest rate locked for the period of the deal, usually a few years. Locked in interest rates mean locked in 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. It’s a lot easier to plan financially knowing your payment will be the same.
Your payment is locked so it really doesn’t matter what the general rates are doing. In the not too distant past there have been some real scary rate rises. 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. In situations like these you may need to redeem the mortgage and pay a hefty redemption penalty on the fixed rate mortgage.
Nearly all fixed rate mortgages have a redemption penalty attached. When you can least afford it you could have a charge slapped on you. You must think twice before agreeing to a fixed rate deal if a charge like this will badly affect you.
It’s worth thinking about paying a bit extra each month in addition to whatever you normally pay. You don’t have to make the same payment month after month for 25 years. Lenders prefer you to make payments like this but they never inform you that you could pay extra if you wish.
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. Not only do you save years, you can also save thousands and thousands of your hard earned money.
What do you do with a mortgage overpayment calculator? You enter your mortgage details. The amount borrowed, the length, the interest rate etc. You then enter any extra amount you can afford to pay. Or enter various value for fun.
The calculator will show you how many years you can expect to shorten your mortgage by. You get the expectant cash saving as well. If you play around with the overpayment figure you can see that the more you overpay the more you save, in cash and years.
Some of the savings can be staggering. 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.
The last example was an overpayment of 50 every month, but what happens if you pay 100 extra. 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 plus point is the years you knock off are totally payment free. By paying a little extra now, you could easily be mortgage free well before you ever expected. You never get info like this from your lender. This sort of stuff is kept quiet by the industry.
In the example where we paid an extra 100 every month and shortened the mortgage by six years. We could save a further 40 thousand by not having to pay your lender every month. 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. You get a good night’s sleep and regular level payments. We also looked at potential savings by paying extra each month. Every little helps.
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