Well take a look at fixed rate mortgages and how they can be good for you. We’ll then look at using a mortgage overpayment calculator. Security comes with the fixed rate mortgage, whereas huge savings can come with the overpayment calculator.
A fixed rate mortgage is a special type of mortgage where you have a fixed interest period. A fixed period of interest that may be a couple or several years. If the interest rate remains static, so do your monthly payments.
Are there any benefits to a fixed rate mortgage? Your payment is fixed because your particular interest rate is fixed. You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.
If the bank base interest rate starts to rise, yours will stay as it is. In our recent history there have been some frightening short term interest rate rises. A rapid rise over a year or so could really see payments rise for those on standard variable mortgages.
There can be certain circumstances when a fixed rate mortgage may not be right for you. 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. 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. 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 may not realise but you can pay any amount over the minimum monthly payment. You lender will prefer you make the minimum payment and will never tell you it’s possible to pay extra.
What are the up sides to paying extra each and every month? If you consistently pay extra in the early years of your agreement you can knock several years off the length. You can save a shedload of cash as well as knock a few years off.
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. 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. By paying an extra fifty each month could save you over 3 years and 12 thousand.
That example is paying just 50 extra every month. What if you could afford 100 a month to overpay? 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. Being mortgage free a few years early could easily be achieved by paying a bit extra now. Lenders will not tell you this, they like to keep this a secret.
If we look at the example where we paid 100 extra and knocked over 6 years off the length. You pay nothing more for the last 6 years of the term, which equates to about another 40 grand saved. You don’t pay this money to your lender so you get to keep it, either save it or spend it.
In this article we’ve looked at the potential of fixed rate mortgages. Every month you pay the same so you get to sleep easy at night knowing this. We also had a look at a mortgage overpayment calculator and the potential savings that can be had.
Topics: House, Mortgage, Real Estate, mortgage deals