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MORTGAGES

Rates up again.

>> Fourth quarter rates for a 30-year fixed-rate mortgage edged slightly north of 5 percent. The good news is that current rates are still far below the roughly 6.5 percent rate that prevailed a year ago. The bad news: Huge federal deficits and continued spending may send mortgage rates spiraling upward.

 Self-defense: Part of the Federal government’s program to revitalize the home mortgage market will allow some home owners to refinance at below market rates. But be aware: To qualify, you must have loans guaranteed or owned by Fannie Mae or Freddie Mac, owe from 80% to 105% of their home’s market value, and must be current with their mortgage payments. About 5 million homeowners are eligible to benefit.

To refinance

>> With the average rate of a 30-year fixed-rate mortgage still historically low, many homeowners can save thousands of dollars a year by refinancing out of a high-rate mortgage.

Quick test to find out if you qualify: Have at least 20 percent equity in your home and a credit score of at least 720. It pays to shop for the best deal, but bear in mind that refinancing with your current bank will minimize your closing costs.

Decide up front to invest time in exploring your options. Pick a single type of loan to simplify the job of comparing terms. Check out national banks, community banks, credit unions. Be sure to include your checking account bank and bank holding company, if you have your investments with one. They know you well, and may give you the best deal of all.

Watch out for higher fees. To make up for what they lose on low interest rates, many lenders have jacked up their fees for such items as private insurance, appraisals, and processing. Fannie Mae and Freddie Mac have also raised the fees for homes they buy or insure. All told, these fees can add thousands to the cost of refinancing. Be sure to take them into account when you compare lender offers.

If you’re having trouble meeting your mortgage payments, don’t wait until you miss a payment. Explain your situation to your lender, and they may change the terms of your loan. The bank, after all, doesn’t want you to walk away from the house. 

Fastest, easiest way to start: Go online to see what terms are available. Start by checking www.realestate.yahoo.com/loans/refinance-mortgage and www.Zillow.com.

Self-defense: Do your homework to be sure you come out significantly ahead after all costs.

Use a mortgage broker?

>>Mortgage brokers can earn their fee, but they are no substitute for shopping on your own. A study by the Department of Housing and Urban Development found that borrowers paid more in fees when working with a broker. Of course, that excess might be more than offset if the broker gets you a better deal than you could on your own.

Self-defense: When a broker recommends a specific loan, ask at least three questions: (1) “Will you sign a document stipulating that you’re working in my best interests, as a fiduciary?” (2) “Will you guarantee the rate and the associated costs?” (3) “Would you make more money with this type of loan than with other types?” These questions will at least tell the broker you’re a sophisticated shopper. Check www.mortgage1A.com.

“Can we afford it?”

>> Even though home prices are lower now, you still have to be careful about buying more house than you can afford. American home buyers have landed hard after a run of “nothing down,” and a new conservatism has taken hold. For a conventional mortgage, most banks now want you to put 20 percent down. Federal Housing Authority (FHA) loans require only 3.5 percent, but there are advantages and disadvantages to both types of mortgage. Check www.mortgageqna.com.

The new rule of thumb: Spend no more than 28 percent of your gross family income on the total amount of three items: mortgage payments, real estate taxes, and home insurance. So a family earning $10,000 a month would spend $2,800 a month on those items. Also, banks want you to have enough cash to cover at least six months of expenses.

Self-defense: Don’t go to the edge. Feet on the ground beats pie in the sky. Check home values and trend information on www.Zillow.com.

Do you qualify for a lower rate?

 

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