July 5th, 2016 5:43 AM by Jackie A. Graves, President
If you currently have a
mortgage, what should you do before interest rates significantly
The "when" related to
interest rate increases has been the subject of debate for a while, but there
is wide-spread agreement that rates will slide up. Whether that's slowly or
quickly represents another debate.
Does the certainty of rate
increases call for action from savvy property owners with one or two existing
mortgages on their real estate?
While rates are near historic lows, refinancing to take advantage of lower
interest rates may make good financial sense, but act soon. Combining existing
primary and second mortgages into one loan may improve your financial situation
and probably lower payments.
Mortgage contracts, which
outline how much must be repaid to the lender according to specific terms, vary
from lender to lender and from borrower to borrower, so do not assume anything
about your mortgage. Read the mortgage documents yourself or contact the lender
to clarify your obligations, rights, and alternatives.
This is a time of transition
for the mortgage industry, sochanges outside of your mortgage
document may influence your borrowing options. You'll never know until you ask.
No one will come knocking on your door to bring you up-to-date.
Homeowners with existing
mortgages will be protected from immediate rate increases unless they have a
variable-rate mortgage, also known as adjustable-rate or floating-rate
mortgage. With these loans, the interest rate is not fixed, but fluctuates
against a reference standard. Vulnerability to rising interest rates depends
upon specific terms set out in mortgage documents. Talk to the lender for
clarification of any unfavorable effects of rising interest rates and to
understand your options.
Mortgages with fixed interest
rates are not vulnerable to rate increases during the term or contractual length of the
loan, which can be 6 months, 1 year, or decades long. However long the term is,
eventually, the mortgage comes due and payable. That's when property owners and
their mortgages are vulnerable to higher interest rates. If you must re-qualify
for refinancing, significantly higher interest rates could pose qualification
restrictions and limit the size of mortgage available to you.
Usually, re-qualification is
low threat because, as the existing mortgage ages, the principal, or
original amount borrowed, is paid down or reduced. Refinancing for a smaller
mortgage at a higher rate should be affordable unless the property owner has
had a change of employment or income.
Even if you expect to refinance
with your current lender, shop around for the best rate and mortgage terms.
Your current lender may decide to match the best offer you receive from a new
lender to retain your business.
When comparing lenders with the
help of a mortgage broker or contacting them yourself, ask questions about fees
and terms like prepayment to be sure you are improving your situation by moving
lenders. If you gain a half point or a point in interest, but face higher fees
or less flexible terms, moving lenders may be an expensive decision. Real
estate professionals are often excellent resources when dealing with mortgage
Don't miss the chance to
maintain your mortgage at a reasonable interest rate. Contact your lender if
you are unsure about your vulnerability to rate increases. Once rates move up,
"if only I'd…" recriminations will get you nowhere.
by PJ Wade - To view the
original article click here