Financial Advice Blog

We are going to investigate what a fixed rate mortgage can do for you.
We’ll then look at using a mortgage overpayment calculator.
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.
A fixed period of interest that may be a couple or several years.
The interest rate you pay is locked; therefore your monthly payments are also locked.

What are the fixed rate mortgage good points?
A fixed rate of interest means a fixed monthly mortgage payment.
You can benefit by knowing your monthly payment is fixed which allows you to budget more effectively.

No matter what the average interest rate is, your rate will stay the same.
In the last few decades we have seen interest rates almost double in a few short months.
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.
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.
These types of situations could invoke a nasty redemption penalty on your 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.
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.
You may not realise but you can pay any amount over the minimum monthly payment.
The lenders would love you to do this but they will rarely tell you that you can indeed pay extra.

Are there any advantages to paying a bit extra each 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.

In what way does a mortgage overpayment calculator work?
You can enter all the relevant figures from your particular deal.
You can enter a figure that you may think about paying as an extra payment each month.

The calculator will show you how many years you can expect to shorten your mortgage by.
It also gives you a figure in cash that you can expect to save.
Both the years and cash saved obviously increase if you put in a higher overpayment figure.

Some of the savings can be staggering.
As an example, borrow 100,000 at 5% over 25 years.
By paying an extra fifty each month could save you over 3 years and 12 thousand.

If you can afford to pay 100 extra instead of 50 what would happen?
We’ll use the same mortgage example figures but 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.
By paying a little extra now, you could easily be mortgage free well before you ever expected.
Lenders will not tell you this, they like to keep this a secret.

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.
You don’t pay this money to your lender so you get to keep it, either save it or spend it.

We’ve looked at some of the advantages of a fixed rate mortgage.
You get to sleep easy in the knowledge your payment will stay the same month after month.
We also had a look at the savings to be made by paying a bit extra every month. It all adds up.

Filed under: Financial Advice