Manage your Mortgage: Tips for 2007

Here is a very good article I found with very common sense tips for any home owner with a mortgage.

Mortgage tips for 2007

Whether you already have a mortgage or you plan to buy a house in the next year, here are seven mortgage tips for 2007.

1. Review your mortgage _ does it still fit your circumstances? Interest rates change, children are born and grow up, sometimes you need to fix up the house and sometimes you need to move on. Life events can trigger changes in the way you pay for your house.

“Every year,” says Dan Hanson, who oversees the retail branches for Countrywide Home Loans,” say, ‘What’s going to happen this year?’ Do I have a child who, in a year, is going to college? Are we going to have a child, maybe add a bedroom or have to move?'” The answer might make you go mortgage shopping.

For example, let’s say you own a house and plan to move in a couple of years because your family is going to grow. Consider refinancing into an adjustable-rate mortgage with a low initial rate that lasts three years (a “3/1 hybrid ARM”). That initial rate probably is lower than the rate you’re paying now and the same with the monthly payments.

Hanson believes that you should ask yourself periodically: “Is my interest rate higher than the market today? Would it make sense to refinance, to take cash out? Would it be a good idea to get a reverse mortgage? How much is my house worth?”

2. Watch out for reset. Have you ever seen a cartoon where Bugs Bunny stands at the base of a cliff and he yells at someone standing on the cliff’s edge, “Watch that foist step. It’s a doozy!” Same thing with a lot of adjustable-rate mortgages: The first step is a doozy _ but up instead of down.

The rate adjustment is called the “reset,” and on hybrids such as 3/1 and 5/1 ARMs, the rate can jump as much as 5 percentage points. More realistically, a lot of borrowers face jumps of 3 percent to 3.5 percent in 2007. For interest-only borrowers, that might mean a doubling of the monthly payment.

Don’t get caught by surprise by a rate reset. Refinance if necessary.

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