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Recent reports estimate that approximately $500 billion in adjustable rate mortgages (ARMs) will reset in 2008. One way to avoid potentially adding hundreds of dollars to your house note is “to refinance to a fixed-rate mortgage,” says Marcia J. Griffin, president of HomeFree-USA (homefreeusa.org). Don’t wait until you fall behind to take action. Employ these home-saving tips:
Review Your Loan
If you have an ARM, and you’re not sure how high the interest rate could go, reread your loan documents. To avoid the sticker shock of a higher payment, send extra cash each month toward the principal. If you do this, “you’ll have more equity in your home if you sell before the mortgage is paid off,” says Tom Kelly, a spokesman for Chase Bank. This will also reduce the loan repayment period and overall interest accruing on your loan. Insider’s Tip: You’ll be notified by mail 60 days before your rate is expected to reset.
Check Your Credit Score
When it comes to refinancing, the process begins with your credit score. Before approaching a lender, order a free credit report from annualcreditreport.com. “Everything in a mortgage is predicated on your credit report and your payment history for all of your bills within the past 12 months,” explains Griffin. You can shop around for the best rates at bankrate.com. Insider’s Tip: Reach for a score in the high 600s or low 700s.
Refinance
“It’s a good idea to look into refinancing if you can’t afford the payments when your rate adjusts,” says Nicole Hall, editor-in-chief
of the Smart Borrower Center at LendingTree.com. However, don’t refinance if you already have a fixed-rate mortgage and purchased your home within the last two to three years. Says Kelly: “You won’t get a lower rate today.” Your monthly payments won’t change drastically enough to make it worth the additional cost of refinancing.
Insider’s Tip: Steven Holland, a partner at Multicultural Homeownership Marketing Consultants (multihmc.com), recommends that consumers refinance under the FHASecure initiative (fha.gov).
Have these tips or others helped you save your house? Share your story below.
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