Sub-prime borrowers must make payments

Friday, October 12, 2007

Borrowers on sub-prime mortgages should try to make all their payments in full and on time in the current climate.

For borrowers with a sub-prime mortgage, it is vital this year they make all of their mortgage payments in full and on time, and re-prioritise to reduce the loan-to-value (LTV) of their mortgage, if possible by paying extra.

This could be the calm before the storm in the mortgage markets following the slowing down in the removal of rates from the market and lenders announcing more "conservative ranges"."The temporary fall in swap rates had allowed a few lenders to enter the market with sub-six per cent fixed rates, but these now are unlikely to last long so existing good deals should be snapped up quickly.

The sub-prime market is growing into its "new skin" and higher prices are likely to follow. As many sub-prime lenders re-set their three month LIBOR on 1st October based on 1st September three month LIBOR of 6.4 per cent, they may need to keep their LIBOR tracker margins higher to make up for the last two months' higher cost of funding.