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Borrowers urged to overpay mortgage

Borrowers urged to overpay mortgage

Category: Mortgages

Updated: 22/03/2010
First Published: 22/03/2010

MONEYFACTS ARCHIVE
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Mortgage borrowers on cheap variable rate deals are being encouraged to clear their debts more quickly by increasing their monthly repayments.

A new scheme launched by Lloyds Banking Group allows customers on its variable rate mortgage to overpay their mortgages by up to 20% with no financial penalty.

The maximum the lender's borrowers could overpay previously without incurring an additional charge was 10%.

The scheme will last for one year until 31 March 2011 and is designed to let borrowers take maximum advantage of the current low interest rate environment.

Recent research conducted on behalf of the banking group showed that around one in four consumers are already choosing to overpay their mortgage.

Almost half (48%) said they were overpaying to reduce the term of mortgage, while just under a quarter (22%) said they wanted to pay less interest over the term of the mortgage.

"With mortgage rates at an historic low, there has never been a better time for the majority of people to overpay their mortgage," said Stephen Noakes, commercial director of mortgages, Lloyds Banking Group.

"The average mortgage repayment has dropped by around £188 per month. And those on tracker mortgages have done even better - on average they are just over £400 a month better off. Customers have a choice to make to gain maximum advantage from the extra cash in their pocket.

"We are seeing our customers behaving very rationally. A number of whom are not necessarily banking the reduction in their interest payments but are actually using that to pay down their interest. This is a very positive move. Not only can it help customers shave interest off their mortgage, it also means less of a payment shock should interest rates begin to move back up."

The lender has calculated that on a £100,000 mortgage with an SVR of 3.5%, overpaying by just £50 per month will reduce the term of a mortgage by three years and six months. It will also save a customer £14,576.04 (£7,557.24 in interest and £7,018.80 in mortgage payments).

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