"How To Assess Your Mortgage Financial Situation" 

1. Review your mortgage annually and find out if it still fits your circumstances. It does not mean that you have to refinance every year and I will be the last one to encourage you to refinance for any reason, but it's a good thing to discuss your financial situation with a real mortgage broker who can talk about other things than just a rate or you may talk to a financial planner. It's a good idea since Interest rates change, children are born, some grow up and may need to go to college, sometimes you need to fix up the house and sometimes you need to move to a bigger one. When you reach a certain age you need to think retirement. Life events can trigger changes in the way you pay for your property.

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 plan to move in 5 years because your family is going to grow. Consider getting an adjustable-rate mortgage with a low initial rate that lasts 5 years (a 5/1 hybrid ARM will have a fixed rate for 5 year). That initial rate probably is lower than the rate you maybe paying with a 30-year mortgage and the same with the monthly payments. This lower payment may help you save $200, $300 that you may invest if you seek help from a financial planner. If you can save $300 per month for the next 5 years at 7% return on your investment you will accumulate $21,903.16.

Before refinancing to save money, make sure you won't get zapped with a pre-payment penalty and make sure you understand the terms of your new loan. Calculate the cumulative monthly savings to see if they  outweigh the closing costs. If not, keep the current loan.

You may ask yourself periodically: "Is my interest rate higher than the market today? Would it make sense to refinance, to take cash out? Find out how much interests you have already paid since you took your last loan and again find out if it makes sense to take a new loan.

2. Watch out for adjustable mortgage reset. Make sure you know your cap rate and how often it will reset at the end of the initial period. The rate adjustment can jump as much as high as 5% points. The interest rate on hybrids generally increase by 2-3 percentage points after the fixed-rate period expires, but most lenders cap the adjustment at 1.5% to 2%. Borrowers who have chosen an interest only payment option on an adjustable rate mortgage may even see a bigger monthly increase at the end of the first 5-year period. Remember that you cannot pay interest only on your loan forever.

That is why it may makes sense to review your mortgage annually. Don't get caught by surprise by a rate reset or any other adjustment on your loan. Refinance your home mortgage if it makes sense to do so.

3. Avoid paying the minimum on an option ARM. An option ARM is an adjustable rate mortgage that lets you decide how much you pay each month. You can make a payment that's big enough to pay off the mortgage in 15 years or 30 years, or you can choose to pay only the interest, or you can make a minimum payment that doesn't necessarily even cover that month's interest. If you choose to pay the minimum you are facing negative amortization. The amount of interest you are not paying gets added to your loan balance every month. Thus you are not building equity and in some circumstances you may even owe more than what the home is worth. That is the case in an declining market. You will certainly never be able to refinance if this is the case.

4. Pay extra towards your principal every month. You will pay off your mortgage much faster and you can potentially save HUNDREDS OF THOUSANDS OF DOLLARS IN INTEREST. Talk to a financial planner to see what maybe best for you. Remember you need to save cash as well so you have liquidity in case of an emergency

5. You may consider getting mortgage insurance instead of a piggyback loan (second mortgage. If you buy a home in 2007, and you make a down payment of less than 20%, you'll either have to buy mortgage insurance (PMI) or get a piggyback loan a first mortgage for 80% of the home's value and a second mortgage for the rest that you owe. That can be 10% of you put down 10%. For a long time, piggyback loans were almost always a better deal because the interest on both loans was tax-deductible and mortgage insurance wasn't deductible. But that changed recently when both houses passed a tax law that makes the mortgage insurance tax deductible. Please consult an accountant for more information on how to qualify for such tax deduction. This is an important change because it means that mortgage insurance will be cheaper in the long run for a lot of home buyers, especially those who live in their homes for 5 or more years and keep the same home mortgage.

6. Finally be skeptical. "If it sounds too good to be true, it probably is". I see plenty of homeowners who got mortgages (usually adjustable and option ARMs) from different lenders and who were surprised when the rates started rising abruptly just a year or two later. Those same homeowners may even face huge prepayment penalties to get out of these loans or they're facing a rate that's well above the market at this point. Be sure you understand the terms of your loan and the consequences in the future. Don't just focus on rate and payment. If you just focus on the rate, then your mortgage broker will just tell you what you want to hear. Unfortunately there is much more you should know besides a rate and a monthly payment.

To Your Success,

It's All About You!