Co-op's excellent mortgage move

by Ed Bowsher on 01 December 2009  |  1 comment
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Co-operative Bank is allowing borrowers to pay off more of their mortgage - an excellent move.

One of the few positive effects of the recession has been low mortgage rates for many borrowers. If you were clever or lucky enough to sign up for a tracker mortgage  two or three years ago, you've probably seen a dramatic fall in your monthly mortgage bill. 

When mortgage rates are low, the sensible approach for many people is to overpay your mortgage.* By doing that, you can reduce your outstanding debt and bring forward the day when you will be mortgage-free. 

And it looks like lots of people have been taking advantage of this opportunity. Co-operative Bank said today that it's seen a 56% rise in the number of customers making mortgage overpayments over the last year. 

However, not all borrowers can make really substantial overpayments. That's because many lenders say that when a borrower is on an introductory deal, the borrower can only repay up to 10% of the balance each year. 

Co-op has made a welcome move to deal with this problem by launching a pilot scheme where borrowers can repay up to 50% of their outstanding balance - even though their original deal had a 10% overpayment limit. Sadly, Co-op isn't offering this facility to all borrowers; just to ones who have already made significant overpayments. But it's a welcome move nonetheless and I hope that Co-op decides to roll it out to all of its customers as soon as possible. 

So well done Co-op! 

• If your mortgage rate is exceptionally low, there is an argument for not making overpayments. Instead you might be better off putting the money you gain from reduced mortgage rates into a savings account. For more on this, read Stop overpaying your mortgage!
• Get free advice on your home loan from lovemoney.com mortgages