Practical Tips to Avoid Higher Payments

Here is an intersting article on Yahoo! Finance with some tips on how to safeguard against higher mortgage payments.

Guard Against Higher Rates

Adjustable-rate mortgages are getting more expensive — here’s what you should do to protect yourself.

Interest rates are on the rise, and so are monthly payments if you have an adjustable-rate mortgage.

Homeowners with these kinds of mortgages may be concerned about what that means to their bottom line.

In today’s tips we’re going to tell you the smart moves you should make if you have an ARM.
1: Know the stakesThe bottom line here is that rising interest rates mean ballooning payments. And since ARMs make up about 25 percent of mortgages, it may pose a widespread problem.

This year, it’s estimated that $330 billion worth of ARMs will adjust upward. On a $200,000 loan that goes from 4.5 percent to 6.5 percent, monthly payments will increase from $1,013 to 1, 254 – a difference of $241 a month or almost $3,000 a year.

2: Buy some timeIf you have a quick-changing mortgage, like an option ARM, you’ll want to think about refinancing. The days of cheap money are over, says Brad Inman of Inman News.

To buy some time, get into a 5-year or a 7-year hybrid adjustable rate. You can’t lose. The average rate on an option ARM today is 6.75 percent, says Bob Moulton of Americana Mortgage. But rates on 5-year or 7-year hybrid ARMs are 6 percent to 6.25 percent.

You’ll want to go back to your original lender and tell them you want a safer loan. Make sure you also look at the cost of refinancing. Generally it costs about a percentage-point or a percentage-point and a half of your original loan.

So refinancing a $200,000 mortgage could cost up to $3,500.

3: Re-Evaluate your Home Equity Line of CreditThree years ago, HELOCs were the darlings of people wanting to make some home improvements. But that was 16 Fed rate hikes ago. Today HELOCs are very costly – and they’re slated to get even more expensive if the Fed follows through with another rate hike this month.

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