Let’s find out just what a fixed rate mortgage is, and how it may benefit you. We’ll also take a peek at how much you could save with an 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. Usually for a period of several years, you get a fixed rate of interest. If the interest rate remains static, so do your monthly payments.

Are there any benefits to a fixed rate mortgage? You benefit by not having the yo-yo effect on your monthly payments. They stay the same every month. You can plan your monthly spending easier knowing your mortgage won’t go up unexpectedly.

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. You may struggle to meet your payments if you have a variable mortgage and rates rise suddenly.

Under certain circumstances, a fixed rate mortgage could be a mistake. 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.

Fixed rate mortgages usually come with charges called redemption penalties. At a time when you least need it, you could get hit with a redemption penalty. If a charge like this will hurt you then you must think very carefully before taking a 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. 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? If you consistently pay extra in the early years of your agreement you can knock several years off the length. Not only do you save years, you can also save thousands and thousands of your hard earned money.

In what way does a mortgage overpayment calculator work? You can enter all the relevant figures from your particular deal. You then enter any extra amount you can afford to pay. Or enter various value for fun.

The calculator tells you how many years you will knock off. It will tell you what sort of cash lump sum you can expect to save as well. The figures in years and cash saved will increase the more you overpay each month.

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. Using the same example mortgage from earlier we now pay 100 extra. This saves you more than 20,000 and knocks a respectable 6 years off the term.

Another benefit is that for the last few years of the original (25 year) term, you don’t pay anything. Being free of your mortgage chains a few years early is a definite reality if you can pay extra now. Lenders will not tell you this, they like to keep this a secret.

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. 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. Regular payments and a good night sleep. Also consider the huge potential in making a little overpayment every month. Even small amounts will add up.