Fixed Rate Mortgages – Who Benefits Most – You Or The Lender?
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.
There are a few different types of mortgage, the fixed rate mortgage being only one of them.
You get your interest rate locked for the period of the deal, usually a few years.
Your interest rate, and therefore your payments are fixed.
What, if any, are the up sides to fixed rate mortgages?
No need to worry about fluctuating interest rates. Your rate and your payments are fixed.
You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.
Bank base rates may rise drastically, however yours will be the same because it’s fixed.
In our lifetime we have already seen some distressing interest rate rises.
You may struggle to meet your payments if you have a variable mortgage and rates rise suddenly.
There are a few situations when a fixed rate mortgage may be a bad decision.
You may decide you need to move house, or even have an unexpected child and simply need more room.
Any situation which sees you changing mortgage can invoke a horrid redemption penalty on you.
Fixed rate mortgages nearly always come bundled with a redemption penalty.
When you can least afford it you could have a charge slapped on you.
Think hard before you take a fixed rate mortgage as these charges can really disrupt your plans.
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.
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.
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?
It uses figures from your mortgage. Amount, interest rate, length of term etc.
You can put various amounts in as the overpayment. Feel free to play around with this figure.
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.
Playing around with the actual overpayment figure can reveal that the more you can pay, the faster you finish your mortgage.
Some of the savings can be staggering.
If you borrowed a hundred thousand at five percent over twenty five years.
Just by paying an extra 50 every month could see you knock over 3 years off and save over 12 grand.
If you can afford to pay 100 extra instead of 50 what would happen?
The same mortgage example but paying 100 extra every month.
You get to shave over 6 years off the length and over 20 grand saved. That’s pretty good.
An extra advantage is you won’t have any payments to make during the last few years of the mortgage.
It’s definitely a reality for you to be free of your mortgage years before planned.
You will never hear this from your lender though; it’s simply not in their interests to tell you to pay off early.
If we revisit the example where we knocked more than six years off the mortgage.
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.
To recap we had a look at what benefit a fixed rate mortgage has for you.
You get to sleep easy in the knowledge your payment will stay the same month after month.
We also looked into the future and saw some big savings if you can make a little overpayment now.