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'Safety first' in mortgage maze; PERSONAL FINANCE.

Byline: TREVOR LAW SPECIAL CORRESPONDENT

Interest rates have probably sunk as low as they can go, and as the Bank of England starts pumping another pounds 75 billion into the economy by buying bonds and corporate debt from banks, millions of homebuyers, and others keen to buy, need a "safety first" strategy through a severe downturn.

The past year produced big winners and losers among borrowers.

The winners are 3.5 million borrowers on tracker loans - including many buy-to-let landlords - who enjoyed an unexpected windfall, especially if no collar was in place to peg their rate at a specified level.

Ray Boulger at leading brokers John Charcol says: "The latest base rate cut to anhistoric lowof 0.5 per cent means many borrowers have wiped roughly 90 per cent off monthly repayments on interest-only loans.

"Someone with an interest-only mortgage of pounds 150,000 and rate equivalent to Bank rate, was paying pounds 625 a month six months ago. Now, they're paying just pounds 62.50 after this latest reduction. Some borrowers with deals priced below Bank Rate are paying nothing."

Some borrowers on Standard Variable Rate (SVR) deals - often the easy option when fixes expire - have thrived too. C&G and Nationwide have an underlying guarantee to be never more than two per cent above base rate,whileHalifaxand Skipton are nevermore than three per cent above.

The big losers are on fixed rate loans, some paying rates as high as 6.5 per cent for another 18 months.

In the toughest scenario, their LTV (loan to value) ratios may be so high - as prices fall - that it is near impossible for them to switch lenders.

Borrowers trying to escape a fix before it expires can be clobbered by early repayment charges running into five figures: the ten-year fix from Britannia BS, for instance, makes a charge in the first three years of eight per cent of the sum outstanding.

Borrowers trying to ensure they handle their mortgages properly in a tricky market have a number of options to consider.

One is to over pay,where possible, to grow the level of equity in their home faster, which makes it easier to get a good deal on the next mortgage.

HSBC says a typical borrower taking a tracker mortgage in October 2008 for pounds 112,756 is now saving over pounds 218 per month on their initial payment. By leaving repayments unchanged, they will pay off their mortgage nine years and three months early, saving nearly pounds 14,000 in interest charges.

Also, they should think hard about the best moment to take a fix.

Cath Hearnden, at My Mortgage Direct says: "A lot depends on what your house is worth. Those with loans near 75 per cent LTV should look at a longer term fix, because they could come unstuck in a couple of years if prices keep falling and they have to move."

Someone with an interest-only mortgage of pounds 150,000 and rate equivalent to Bank rate, was paying pounds 625 a month six months ago.

Now, they're paying just pounds 62.50

CAPTION(S):

Borrowers with interest only and tracker mortgages have seen their monthly repayments plummet
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Mar 20, 2009
Words:531
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