Lloyds Banking Group has launched a scheme that will allow all customers with a variable rate deal to overpay their mortgages by 20%, with no financial penalty.
Typically, lenders that allow overpayments let customers overpay on their mortgages by a maximum of 10% each year – subject to terms and conditions.
Lloyds Banking Group’s scheme will run from 13 March 2010 until 31 March 2011.
Mortgage overpayment, low mortgage rates
Recent research conducted on behalf of the banking group showed that around 25% of consumers questioned are already choosing to overpay their mortgage. Of those who are already overpaying, 48% said their aim was to reduce the term of their mortgage while 22% said they were overpaying in order to cut their interest costs.
The Bank of England’s decision to keep the base rate at 0.5% has meant a marked improvement in mortgage affordability for homeowners with variable rate deals, and has made it easier for many households to overpay.
According to Lloyds, capital and interest mortgage payments swallowed up 32% of average post-tax earnings in the fourth quarter of 2009 – whereas they accounted for 47% in the fourth quarter of 2007.
Save money by overpaying your mortgage
If you’re able to afford it, overpaying your mortgage could save you thousands of pounds and significantly shorten your mortgage term. Statistics from Lloyds show that, on a £100,000 mortgage costing 3.5%, consistent overpayments of £200 a month could cut the term of the deal by almost 10 years and save the borrower over £20,000 in interest.
The savings you could make depend on the specific details of your deal and your personal circumstances. Remember, it might make sense to pay off more expensive debts first before overpaying your mortgage.
Which? Money editor James Daley said: ‘The launch of this scheme is good news for existing customers of Lloyds Banking Group who are on variable rate deals. However, it shouldn’t tempt homeowners who could get a better mortgage rate elsewhere into choosing a Lloyds product.
‘If you are looking to save money and pay your mortgage off more quickly, you may also want to consider offsetting your home loan against your savings.’
Find the best mortgage deal for you
You can read more about flexible mortgages, including offset mortgages, in the Which? Flexible mortgages advice guide.
Meanwhile, if you’re looking for a new mortgage rate, be sure to use the Which? mortgage calculator. It allows you to compare the total cost of mortgage deals, to ensure you aren’t caught out by unexpected fees and charges.
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