Consider Your Mortgage Strategy Carefully

With the housing market in a state of turmoil, many people are wondering, what, if anything, they should or could do to improve their home financing plan.  Over this past year, the Federal Reserve has lowered interest rates in an effort to inject more liquidity into our financial markets and keep general interest rates down.  Part of their objective is to help the hundreds of thousands of homeowners who borrowed money using adjustable rate mortgages and whose mortgages will ‘re-set’ at higher rates in the coming months.  In a sense, it has worked as mortgage rates remain relatively low.  On the other hand, many homeowners find themselves in the unenviable position of being unable to refinance because their home is worth less than their mortgage balance and lenders have significantly tightened their credit policies.   For these people, hold on.  The government and lenders are considering plans to come to your aid.  For everyone else, now is a good time to review your options.

Homeowners should periodically review reverse mortgage pros to determine if you can improve your situation.  Particularly if you currently have an Adjustable Rate Mortgage (ARM) and plan to stay in your home beyond the fixed-rate period, consider the wisdom of refinancing now.  Reason?  My best guess is that the next interest rate move by the Federal Reserve will be up.  And while changes in the Fed rate are not directly related to mortgage rates, they too will likely be higher a year from now.  The best way to decide if refinancing makes sense is to calculate your ‘break-even’ point…that point where you begin making money under the new mortgage plan.  For an easy-to-use calculator, go to the Resource Center at and click on ‘Mortgage Refinance Calculator’.  Look in The Birmingham News’ Sunday Money section for comparative mortgage rates or call your mortgage banker.

New home buyers should carefully match the type of mortgage you purchase to your specific needs and plans for your home.  A key question to ask yourself is, “How long will I be in my home?”  Research indicates that the average life of a mortgage loan is four to seven years.  “You can save yourself thousands of dollars by matching your mortgage to how long you plan to stay in your home.  For example, if you expect to move within five years, you’d be better off getting an Adjustable Rate Mortgage (ARM) verses a 15-year or 30-year fixed mortgage”, says Chad McWhirter, a mortgage planner with MortgageBanc, LLC in Birmingham.  ARMs offer a lower fixed rate for a period of 3, 5 or 7 years and then convert to an annual adjustable rate.  If you think you’ll move in five years, Chad recommends a 7-year ARM to give yourself time to switch to a fixed rate if your plans change.