Budgeting Made Easy With A Fixed Rate Mortgage
May 27th, 2009 by Monty Burn
We are going to investigate what a fixed rate mortgage can do for you. We will also look into how a mortgage overpayment calculator might save you lots of cash. With the fixed rate mortgage comes security. With the mortgage overpayment calculator comes potential savings.
A fixed rate mortgage is a special type of mortgage where you have a fixed interest period. The interest rate is fixed, usually for a number of years. If the interest rate remains static, so do your 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. You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.
It doesn’t matter how much interest rates rise, your payments are fixed. In our lifetime we have already seen some distressing interest rate rises. People on variable rate mortgages are much more likely to be affected by rapid rises in interest rates.
There are a few situations when a fixed rate mortgage may be a bad decision. 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. Either of these events will cause you to trigger an unwanted redemption penalty.
Most fixed rate mortgages come tied to a nasty redemption penalty. You can get hit with a nasty charge when you are least expecting it. There is never a good time to be hit with extra charges so think carefully before taking the fixed rate mortgage.
During the term of your mortgage it’s worth considering paying a bit extra each month if your budget will stretch. It’s not set in stone that you have to pay the same minimum amount every month. You lender will not tell you it’s possible to pay extra as they prefer you just pay the minimum.
What are the up sides to paying extra each and every month? You can easily shave years of your mortgage. Be debt free much earlier. Not only do you save years but you save piles of cash, usually many thousands.
In what way does a mortgage overpayment calculator work? Enter all the figures that relate to your mortgage. You also enter a figure that you want to overpay. You can play around with this figure.
You get a resulting figure out of the calculator in years you can shave off. It also tells you what sort of financial saving you can expect to make. Playing around with the actual overpayment figure can reveal that the more you can pay, the faster you finish your mortgage.
There are astonishing amounts of savings to be had. Quick example, 25 year mortgage borrowing 100,000 at 5%. Just by paying an extra 50 every month could see you knock over 3 years off and save over 12 grand.
The last example was an overpayment of 50 every month, but what happens if you pay 100 extra. Using the same figures in the mortgage but substituting 100 extra for the previous 50 extra. You get to shave over 6 years off the length and over 20 grand saved. That’s pretty good.
An extra benefit is the years you save are free from any payment whatsoever. Being mortgage free a few years early could easily be achieved by paying a bit extra 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. This shortening of the mortgage by six years saves you another 40,000 or more. 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. Regular payments and a good night sleep. We also had a look at the savings to be made by paying a bit extra every month. It all adds up.
