12 September 2007
Foreclosure doesn't just happen to people who don't make their mortgage payments. Your homeowner's association (HOA) can take your house or condo if you're not careful. In one case, a disabled California man lost his home in a foreclosure sale because he was $123 behind on his homeowner's dues. The house was worth $280,000. Unfair? Abusive? You bet!Read More »
Mortgage Basics: Knowledge is Power
By Richard BarringtonNFNS Columnist
For most of us,
getting a mortgage for the first time is an exercise in confusion. Talk to many
people about this experience, and they'll say it's a blur--they don't know what
happened, except that on that day they signed more autographs than Tom Cruise
and went through more paper than a Xerox convention.
As with any trade, the mortgage industry has its share of
jargon, and like any financial business, it has more than its share of
paperwork. Having gone through that once, it is no surprise that at first mortgage
holders may be in no hurry to relive the experience by applying for a home
equity loan or refinancing an existing mortgage. However, by understanding a
few basics, mortgage holders can find the experience considerably less
confusing the second time around.
For example, understanding just a few things about mortgage
rates can help you make decisions about whether to refinance or take out a home
equity loan.
Mortgage Rates
Mortgage rates are the interest you are charged on your home loan. There are three basic things to understand about mortgage rates:
- Mortgage rates fluctuate constantly. Mortgage rates are like any commodity that is valued by the marketplace--they can go up and down every day as events influence financial markets worldwide. Any mortgage holder should be keeping at least a casual eye on interest rates, because when they fall, as they did in 2007, it may present an opportunity to save significant money by refinancing.
- Mortgage rates vary from lender to lender. Think of this in terms of gasoline prices. The market in general may go up or down, but different gas stations usually have different prices, and sometimes there are surprisingly large differences between the lowest and highest prices available. Similarly, while mortgage lenders react to the same general trends, shopping around can reveal significant differences.
- When
in doubt, lean toward a fixed-rate mortgage. There is a place for
adjustable-rate mortgages, but because they can radically change your
monthly mortgage payments they represent the kind of unknown that many
people don't want in their budgets.
The above can be further boiled down to three actionable steps:
- Check on mortgage rates at least once a month
- If they fall significantly below your current mortgage rate, shop around for a lender who can give you the best rate for refinancing your mortgage
- Given
the opportunity to lower your interest rate, lock it in with a fixed-rate
mortgage.
If mortgage rates don't fall but you need cash for a home
improvement or other long-term project, you can apply for a home equity loan.
However, if interest rates have fallen, consider obtaining that cash by refinancing
for more than the remaining balance on your mortgage. This is known as a
cash-out refinancing, and it will allow you to pay the lower rate on the entire
amount outstanding, rather than just on the home equity loan.
Richard Barrington is
a freelance writer and novelist who previously spent over twenty years as an
investment industry executive.
About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.