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Lloyds makes it easier to pay off your mortgage early

Lloyds Banking customers could pay off their mortgages more quickly, thanks to new rules introduced last week.

Lloyds Banking is doubling the amount mortgage customers can overpay, to help them pay off their mortgages more quickly while interest rates remain low.

Minimum annual repayments are doubling to 20%, allowing customers to clear their mortgages more quickly.

A year of the Bank of England base rate at 0.5% has resulted in borrowers on variable rate and tracker mortgages paying much less for their mortgages.

Average mortgage repayments have fallen by £188 a month and tracker mortgage customers can be as much as £400 a month better off.

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

"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.”

He added: “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.”

Overpaying by £200 a month on a £100,000 mortgage at 3.5% could cut 9 years and 7 months off the term of a mortgage and save over £20,000 in interest payments.

A £50 overpayment could save £7,557 in interest and cut 3 years and six months off the term of the mortgage.

Chris Eagle, commercial manager at Creditchoices.co.uk, said: “Low interest rates and low repayments have really helped many homeowners through the recession.

“However, if you can afford to overpay, it is a great move not just to reduce the term of the mortgage. When interest rates do start to rise and borrowers look to remortgage, overpaying now means you could build up more equity and qualify for a lower loan-to-value mortgage with a lower interest rate.”