If you are one of the borrowers whose subprime mortgage interest will be frozen, congratulations! You just dodged a bullet. Now you need to be proactive. So, here is what 
you need to do so you can make the most of your situation and prepare for the future:
1. Review Your Credit Report: You need to obtain a copy of your credit report as soon as possible and make a plan of attack on improving your credit. First check for any errors in your report. If you find errors contact the creditor and ask them to fix it, they must respond to your request within 30 days (take good notes).
Once you’ve reviewed errors you need to make sure you review my “Seven Ways to Destroy Your Credit†and do the exact opposite. Believe me when I say improving your credit can end up saving you thousands of dollars. Lenders have significantly tightened credit. I suggest you make a plan to get your credit score to at least 680 by the end of next year (2008).
2. Manage Your Credit: There are a lot of credit misconceptions. Read my “Top Five Credit Misconceptions” post. This will help you understand how to better manage credit. This is not the time to believe hearsay. You need to become educated on managing your credit. Here is a snapshot of the five misconceptions:
- Co-signing a loan doesn’t make you responsible for the account.
- Paying off a negative record will get it removed from your credit report.
- Paying off a debt will make your credit score jump 50 points right away.
- Checking your credit reports will lower your credit score.
- Closing old accounts will improve your credit score.
3. Make Five Year Income/Employment Plan: This can be tricky, but the way to start is by developing a budget for your family. Even if you don’t live on a budget, developing one can help you get a grip on what you can afford. Calculate the monthly payment if the rate adjusted today. Then, make plans to increase income so you can afford it. It may mean a different job, increasing your savings etc.
Be mindful that if you become self-employed then lenders will want to see a two year history in this new profession before they extend credit. They will want to see two years of personal and sometimes, business tax returns. So, carefully plan any dramatic career moves with the mortgage in mind.
5. Decide What to Do With Your House: If you can’t afford the house with the higher interest rate then I suggest you sell the house. Otherwise you’re only shifting the problem into the future. Depending on your market it could take several months to sell your home. Take advantage of the rate freeze. If you need a qualified agent, call me and I can recommend a few.
If your home value has fallen, then you can either wait for the market to come back or determine how much of a loss you’re willing to take and sell the home. Which ever path you take, you need to make a plan.
In summary, as I said before, you need to be proactive and take advantage of this new reality. So, start now!