What to Do When Your Credit Card Goes Missing

You’re likely to lose track of a credit card at some point—many people do. You’re standing at the checkout counter, you open your wallet and it’s not there. What you do depends on how prepared you are and whether you think the card was lost or stolen. How to Prepare for a Lost Credit Card… Read More

The post What to Do When Your Credit Card Goes Missing appeared first on Credit.com.

Inside Sarah Jessica Parker and Matthew Broderick’s Windfall Real Estate Sale: What It Means for NYC

The stars of “Sex and the City” and “Ferris Bueller’s Day Off” sold their Charles Street townhouse in New York City for $15 million. Here’s what it means for Manhattan’s real estate game.

The post Inside Sarah Jessica Parker and Matthew Broderick’s Windfall Real Estate Sale: What It Means for NYC appeared first on Real Estate News & Insights | realtor.com®.

A Guide To Everything You Need To Know About Home Ownership Costs [Free Download]

Along with the excitement of purchasing a new home, comes the additional costs that you will be expected to pay as a homeowner. Apart from covering the mortgage of your home, you’ll have additional expenses – such as home insurance – that you will be expected to cover. If you’re looking to budget for a

The post A Guide To Everything You Need To Know About Home Ownership Costs appeared first on Zoocasa Blog.

Which Debts Should You Prepay First? A 6-Step Plan

Maya asks:

“Is it better to pay off student loans or a mortgage first? I’m asking for my brother, who took out $80,000 in student loans about 20 years ago and has only paid off about $10,000. He recently bought a home in Southern California and took out a 30-year mortgage that might be as much as $400,000. I don’t know the interest rates he’s paying on these debts. I think he should pay off his student loans first because the total debt is smaller, older, and can’t be discharged in a bankruptcy. What do you think?”

Thanks for your question, Maya! This dilemma is common, especially now that most federal student loans are in automatic forbearance from March 13 to September 30, 2020, due to coronavirus-related economic relief. That means millions of student loan borrowers suddenly have the option to stop making payments without adverse financial consequences, such as hurting their credit or getting charged additional interest or fees.

If you have qualifying student loans and you're dealing with financial hardship due to the pandemic or another challenge, you may be grateful to have your payments suspended. But if your finances are in good shape and you don’t have any dangerous debts, such as high-rate credit cards or loans, you may be wondering what to do with the extra money. Should you send it to your student loans despite the forbearance, to your mortgage, or to some other account?

RELATED: 10 Things Student Loan Borrowers Should Know About Coronavirus Relief

6 Steps to Decide Whether to Pay Off Student Loans or a Mortgage First

Let's take a look at how to prioritize your finances and use your resources wisely during the pandemic. This six-step plan will help you make smart decisions and reach your financial goals as quickly as possible.

1. Check your emergency savings

While many people begin by asking which debt to pay off first, that’s not necessarily the right question. Instead, zoom out and consider your financial life's big picture. An excellent place to start is to review your emergency savings.

If you’ve suffered the loss of a job or business income during the pandemic, you’re probably very familiar with how much or how little savings you have. But if you haven’t thought about your cash reserve lately, it’s time to reevaluate it.

Having emergency money is so important because it keeps you from going into debt in the first place. It keeps you safe during a rough financial patch or if you have a significant unexpected expense, such as a car repair or a medical bill.

How much emergency savings you need is different for everyone. If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

If you’re the sole breadwinner for a large family, you may need a bigger financial cushion than a single person with no dependents and plenty of job opportunities.

A good rule of thumb is to accumulate at least 10% of your annual gross income as a cash reserve. For instance, if you earn $50,000, make a goal to maintain at least $5,000 in your emergency fund.

You might use another standard formula based on average monthly living expenses: Add up your essential costs, such as food, housing, insurance, and transportation, and multiply the total by a reasonable period, such as three to six months. For example, if your living expenses are $3,000 a month and you want a three-month reserve, you need a cash cushion of $9,000.

If you have zero savings, start with a small goal, such as saving 1 to 2% of your income each year. Or you could start with a tiny target like $500 or $1,000 and increase it each year until you have a healthy amount of emergency money. In other words, it might take years to build up enough savings, and that’s okay—just get started!

Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

Unless Maya’s brother has enough cash in the bank to sustain him and any dependent family members through a financial crisis that lasts for several months, I wouldn’t recommend paying off student loans or a mortgage early. Your financial well-being depends on having cash to meet your living expenses comfortably, not on paying a lender ahead of schedule.

If you have enough emergency savings to feel secure for your situation, keep reading. Working through the next four steps will help you decide whether to pay down your student loans or mortgage first.

2. Reach your retirement goals

In addition to saving for potential emergencies, it’s critical to save regularly for your retirement before paying down a student loan or mortgage early. So, if Maya’s brother isn’t contributing regularly to meet a retirement goal, that’s the next priority I’d recommend for him.

Consider this: If you invest $500 a month for 35 years and have an average 8% return, you’ll end up with an impressive retirement nest egg of more than $1.2 million! But if you wait until 10 years before retirement to start saving, you’d have to invest over $5,000 a month to have $1 million in the bank. When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

When it comes to your retirement savings, procrastinating can make the difference between scraping by or have a comfortable lifestyle down the road.

A good rule of thumb is to invest at least 10% to 15% of your gross income for retirement. For instance, if you earn $50,000, make a goal to contribute at least $5,000 per year to a tax-advantaged retirement account, such as an IRA or a retirement plan at work, such as a 401(k) or 403(b).

For 2020, you can contribute up to $19,500, or $26,000 if you’re over age 50, to a workplace retirement account. Anyone with earned income (even the self-employed) can contribute up to $6,000 (or $7,000 if you’re over 50) to an IRA.

The earlier you make retirement savings a habit, the better. Not only does starting sooner give you more time to contribute money, but it leverages the power of compounding, which allows the growth in your account to earn additional interest. That’s when you’ll see your retirement account value mushroom!

3. Have the right insurance

In addition to building an emergency fund and saving for retirement, an essential part of taking control of your finances is having adequate insurance. Many people get into debt in the first place because they don’t have enough of the right kinds of coverage—or they don’t have any insurance at all.

Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

As your career progresses and your net worth increases, you’ll have more income and assets to protect from unexpected events. Without enough insurance, a catastrophic event could wipe out everything you’ve worked so hard to earn.

Make sure you have enough health insurance to protect yourself and those you love from an illness or accident jeopardizing your financial security. Also, review your auto and home or renters insurance coverage. And by the way, if you rent and don’t have renters insurance, you need it. It’s a bargain for the protection you get; it only costs $185 per year on average. 

And if you have family who would be hurt financially if you died, you need life insurance to protect them. If you’re in relatively good health, a term life insurance policy for $500,000 might only cost a couple of hundred dollars per year. You can get free quotes for many different types of insurance using sites like Bankrate.com or Policygenius.com.

If Maya’s brother is missing critical types of insurance for his lifestyle and family situation, getting it should come before paying off a student loan or mortgage early. It’s always a good idea to review your insurance needs with a reputable agent or a financial advisor who can make sure you aren’t exposed to too much financial risk.

4. Set other financial goals

But what about other goals you might have, such as saving for a child’s education, starting a business, or buying a home? These are wonderful if you can afford them once you’ve accounted for your emergency savings, retirement, and insurance needs.

Make a list of your financial dreams, what they cost, and how much you can afford to spend on them each month. If they’re more important to you than paying off student loans or a mortgage early, then you should fund them. But if you’re more determined to become completely debt-free, go for it!

5. Consider your opportunity costs

Once you’ve hit the financial targets we’ve covered so far, and you have money left over, it’s time to consider the opportunity costs of using it to pay off your student loans or mortgage. Your opportunity cost is the potential gain you’d miss if you used your money for another purpose, such as investing it.

A couple of benefits of both student loans and mortgages is that they come with low interest rates and tax deductions, making them relatively inexpensive. That’s why other high-interest debts, such as credit cards, personal loans, and auto loans, should always be paid off first. Those debts cost more in interest and don’t come with any money-saving tax deductions.

Especially in today’s low interest rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio.

But many people overlook the ability to invest extra money and get a higher return. For instance, if you pay off the mortgage, you’d receive a 4% guaranteed return. But if you can get 6% on an investment portfolio, you may come out ahead.

Especially in today’s low-interest-rate environment, it’s possible to get a significantly higher return even with a reasonably conservative investment portfolio. The downside of investing extra money, instead of using it to pay down a student loan or mortgage, is that investment returns are not guaranteed.

If you decide an early payoff is right for you, keep reading. We’ll review several factors to help you know which type of loan to focus on first.

 

6. Compare your student loans and mortgage

Once you have only student loans and a mortgage and you’ve decided to prepay one of them, consider these factors.

The interest rates of your loans. As I mentioned, you may be eligible to claim a mortgage interest tax deduction and a student loan interest deduction. How much savings these deductions give you depends on your income and whether you use Schedule A to itemize deductions on your tax return. If you claim either type of deduction, it could reduce your after-tax interest rate by about 1%. The debt with the highest after-tax interest rate is typically the best one to pay off first.

The amounts you owe. If you owe significantly less on your student loans than your mortgage, eliminating the smaller debt first might feel great. Then you’d only have one debt left to pay off instead of two.

You have an interest-only adjustable-rate mortgage (ARM). With this type of mortgage, you’re only required to pay interest for a period (such as several months or up to several years). Then your monthly payments increase significantly based on market conditions. Even if your ARM interest rate is lower than your student loans, it could go up in the future. You may want to pay it down enough to refinance to a fixed-rate mortgage.

You have a loan cosigner. If you have a family member who cosigned your student loans or a spouse who cosigned your mortgage, they may influence which loan you tackle first. For instance, if eliminating a student loan cosigned by your parents would help improve their credit or overall financial situation, you might prioritize that debt.

You qualify for student loan forgiveness. If you have a federal loan that can be forgiven after a certain period (such as 10 or 20 years), prepaying it means you’ll have less forgiven. Paying more toward your mortgage would save you more.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end.

As you can see, the decision to eliminate debt and in what order, isn’t clear-cut. Mortgages and student loans are some of the best types of debt to have—they allow you to build wealth by accumulating equity in a home, getting higher-paying jobs, and freeing up income you can save and invest.

In other words, if Maya’s brother uses his excess cash to prepay a low-rate mortgage or a student loan, it may do more harm than good. So, before you rush to prepay these types of debts, make sure there isn’t a better use for your money.

Being completely debt-free is a terrific goal, but keeping inexpensive debt and investing your excess cash for higher returns can make you wealthier in the end. Only you can decide whether paying off a mortgage or student loan is the right financial move for you.

What's the Best Type of Mortgage for You?

When you're ready to buy a home, choosing the best lender and type of mortgage can seem daunting because there are many choices. Since no two real estate transactions or home buyers are alike, it's essential to get familiar with different mortgage products and programs. 

Let's take a look at the two main types of mortgages and several popular home loan programs. Choosing the right one for your situation is the key to buying a home you can afford. 

What is a mortgage?

First, here's a quick mortgage explainer. A mortgage is a loan used to buy real estate, such as a new or existing primary residence or vacation home. It states that your property is collateral for the debt, and if you don't make timely payments, the lender can take back the property to recover their losses.

In general, a mortgage doesn't pay for 100% of a home's purchase price.

In general, a mortgage doesn't pay for 100% of a home's purchase price. You typically must make a down payment, which could range from 3% to 10% or more, depending on the type of loan you qualify for. 

For example, if you agree to pay $300,000 for a home and have $15,000 to put down, you need a mortgage for the difference, or $285,000 ($300,000 – $15,000). In addition to a down payment, lenders charge a variety of processing fees that you either pay upfront or roll into your loan, which increases your debt.

At your real estate closing, the lender wires funds to the closing agent or attorney. After you sign a stack of mortgage and closing documents, your down payment and mortgage money go to the seller and various parties, such as a real estate broker, title company, inspector, surveyor, and insurance company. You leave the closing as a proud new homeowner and begin making mortgage payments the next month.

What is a fixed-rate mortgage?

The structure of your loan and payments depends on whether your interest rate is fixed or adjustable. So, understanding how these two main types of mortgage products work is essential.

A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy.

A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy. The most common fixed-rate mortgage terms are 15- and 30-years. But you can also find 10-, 20-, 40-, and even 50-year fixed-rate mortgages.

Getting a shorter mortgage means you pay it off faster and at a lower interest rate than with a longer-term option. For example, as of December 2020, the going rate for a 15-year fixed mortgage is 2.4%, and a 30-year is 2.8% APR. 

The downside is that shorter loans come with higher monthly payments. Many people opt for longer mortgages to pay as little as possible each month and make their home more affordable.

Here are some situations when getting a fixed-rate mortgage makes sense:

  • You see low or rising interest rates. Locking in a low rate for the life of your mortgage protects you against inflation. 
  • You want financial stability. Having the same mortgage payment for decades allows you to easily budget and avoid financial surprises. 
  • You don't plan to move for a while. Keeping a fixed-rate mortgage over the long term gives you the potential to save the most in interest, especially if interest rates go up.

What is an adjustable-rate mortgage (ARM)?

The second primary type of home loan is an adjustable-rate mortgage or ARM. Your interest rate and monthly payment can go up or down according to predetermined terms based on a financial index, such as the T-bill rate or LIBOR

Most ARMs are a hybrid of a fixed and adjustable product. They begin with a fixed-rate period and convert to an adjustable rate later on. The first number in the name of an ARM product is how many years are fixed for the introductory rate, and the second number is how often the rate could change after that.

For instance, a 5/1 ARM gives you five years with a fixed rate and then can adjust, or reset, every year starting in the sixth year. A 3/1 ARM has a fixed rate for three years with a potential rate adjustment every year, beginning in the fourth year.

When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go.

ARMs are typically 30-year products, but they can be shorter. With a 5/6 ARM, you pay the same rate for the first five years. Then the rate could change every six months for the remaining 25 years.

ARMs come with built-in caps for how much the interest rate can climb from one adjustment period to the next and the potential increase over the loan's life. When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go. In other words, you should be comfortable with the worst-case ARM scenario before getting one.

In general, the introductory interest rate for a 30-year ARM is lower than a 30-year fixed mortgage. But that hasn't been the case recently because rates are at historic lows. The idea is that rates are so low they likely have nowhere to go but up, making an ARM less attractive. 

I mentioned that the going rate for a 30-year fixed mortgage is 2.8%. Compare that to a 30-year 5/6 ARM, which is also 2.8% APR. When ARM rates are the same or higher than fixed rates, they don't give borrowers any upsides for taking a risk that their payment could increase. 

ARM lenders aren't making them attractive because they know once your introductory rate ends, you could refinance to a lower-rate fixed mortgage and they'd lose your business after just a few years. They could end up losing money if you haven't paid enough in fees and interest to offset their cost of issuing the loan.

Unless you believe that rates can drop further (or until ARM rates are low enough to offer borrowers significant savings), they aren't a wise choice in the near term.

So, unless you believe that rates can drop further or until ARM rates are low enough to offer borrowers significant savings, they aren't a wise choice in the near term. However, always discuss your mortgage options with potential lenders, so you evaluate them in light of current economic conditions.

RELATED: How to Prepare Your Credit for a Mortgage Approval

5 types of home loan programs 

Now that you understand the fundamental differences between fixed- and adjustable-rate mortgages, here are five loan programs you may qualify for.

1. Conventional loans

Conventional loans are the most common type of mortgage. They're also known as a "conforming loan" when they conform to standards set by Fannie Mae and Freddie Mac. These federally-backed companies buy and guarantee mortgages issued through lenders in the secondary mortgage market. Lenders sell mortgages to Fannie and Freddie so they can continuously supply new borrowers with mortgage funds. 

Conventional loans are popular because most lenders—including mortgage companies, banks, and credit unions—offer them. Borrowers can pay as little as 3% down; however, paying 20% eliminates the requirement to pay an additional monthly private mortgage insurance (PMI) premium.

2. FHA loans

FHA or Federal Housing Administration loans come with lenient underwriting standards, making homeownership a reality for more Americans. Borrowers need a 3.5% down payment and can have lower credit scores and income than with a conventional loan. 

3. VA loans

VA or Veterans Administration loans give those with eligible military service a zero-down loan with no monthly private mortgage insurance required. 

4. USDA loans

The USDA or U.S. Department of Agriculture gives loans to buyers who plan to live in rural and suburban areas. Borrowers who meet certain income limits can get zero-down payments and low-rate mortgage insurance premiums.

5. Jumbo loans

Jumbo loans are higher mortgage amounts than what's allowed by Fannie Mae and Freddie Mac, so they're also known as non-conforming loans. In general, they exceed approximately $500,000 in most areas.

Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.

This isn't a complete list of all the loan programs you may qualify for, so be sure to ask potential lenders for recommendations. Remember that just because you're eligible for a program, such as a VA loan, that doesn't necessarily mean it's the best option. Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.

What Is a Mortgage Refinance? 5 Ways to Know If It’s a Good Idea

Jason says:

Hi, Money Girl. I’m interested in refinancing and getting a lower interest rate on my mortgage; however, I may need to sell my home and relocate in a year or so. In that case, does a refinance still make sense? If so, what factors should I consider?

Jason, thanks for your question! It’s a perfect time for homeowners to consider refinancing because interest rates are at historic lows.

If you’re a homeowner, your mortgage payment is probably your largest monthly expense, so it’s wise to stay alert for opportunities to reduce it by refinancing. Plus, your financial circumstances and needs today may be very different than they were when you originally got your mortgage.

It’s a perfect time for homeowners to consider refinancing because interest rates are at historic lows.

I'll answer Jason’s question by reviewing what a mortgage refinance is, explaining common reasons to consider doing one, and covering five ways to know if it’s a good idea for your situation.

What is a mortgage refinance?

Refinancing is when you apply for a new loan to pay off an existing loan balance. The new loan could be with your same institution or with a different lender. The idea is to swap out a higher-interest loan for a lower-interest one, which decreases the amount of interest you have to pay and may also reduce your monthly payments.

When you take out a mortgage to buy a home, various factors determine the interest rate you get offered. While your credit, down payment, and income history are critical, lenders base mortgages on the prevailing interest rates. 

An interest rate is simply the cost of money for borrowers. Rates in the U.S. fluctuate according to the monetary policy of the Federal Reserve or Fed, which is our central bank. 

A good rule of thumb is to consider refinancing when the current rate dips at least one percentage point below what you’re paying for your mortgage.

When interest rates are low, it’s like money’s on sale, as strange as that sounds! Banks should display a big banner on their front door or website that reads “bargain basement prices on dollars” or “we sell money cheap” because that’s what happens when interest rates go down. Low rates are great for borrowers, but not so good for lenders. 

The Freddie Mac website shows historical data for interest rates on 30-year mortgages since 1971. In August 2020, the average for a fixed-rate, 30-year mortgage was 2.94%. A year earlier, the same loan was 3.62%, and ten years before, it was 4.43%. 

Since interest rates change periodically, the rate you’re currently paying on a mortgage may be significantly different than the going rate. A good rule of thumb is to consider refinancing when the current rate dips at least one percentage point below what you’re paying for your mortgage.

What’s the cost to refinance a mortgage?

You need at least one percentage point between the going rate and yours because there’s a cost to do a refinance. Closing a loan means you must pay fees to various companies, including your lender or mortgage broker, property appraiser, closing agent or attorney, and surveyor. Plus, there are fees required by the local government for recording the mortgage, and maybe more costs, depending on where you live. 

The total upfront cost of a refinance depends on the lender and property location. It could be as high as 3% to 6% of your outstanding loan balance. The trick to knowing if it’s worth it is to figure out when you’d break even on those costs. In other words, when do you go from the red to black on the deal? 

If you pay for a refinance but don’t keep your home long enough to recoup the cost, you’ll lose money. But if you do keep the property beyond the financial break-even point (BEP), you’ll feel like a genius because you saved money in the long run!

If you pay for a refinance but don’t keep your home long enough to recoup the cost, you’ll lose money.

You may be able to roll closing costs for a refinance into the new loan, which means you would have nothing or little to pay out-of-pocket. But adding them increases the amount you borrow and may also increase the interest rate you pay for the life of the loan. For that reason, it’s essential to ask the lender for a side-by-side comparison of all the terms for each loan option so you can carefully evaluate them. 

So, how do you figure the BEP to know if doing a refinance is wise? Here’s a simple BEP formula: Refinance break-even point = Total closing costs / Monthly savings.

For instance, if your closing costs are $5,000 and you save $150 a month on your mortgage payment by refinancing, it would take 34 months or almost three years to recoup the cost. The calculation is $5,000 total costs / $150 savings per month = 33.3 months to break even.

For help crunching your numbers, check out the Refinance Breakeven Calculator at dinkytown.com.

Since how long you own your home after a refinance is critical for making it worthwhile, I’m glad that Jason brought it up in his question. For instance, if he finds out that he’d need to own his home for five years to break-even, but he only plans on staying in it for two years, that should be a deal-breaker.

How to get approved for a mortgage refinance

If you believe that doing a refinance could be wise, you’ll also need to consider if you qualify. Lenders have different underwriting requirements, but most require you to have a minimum amount of equity in your property.

Equity is the difference between your home’s market value today and what you owe on it. A critical ratio for refinancing is known as the loan-to-value or LTV.

For example, if your home value is $300,000 and you have a $150,000 mortgage outstanding, you have $150,000 in equity, an LTV ratio of 50%. But if you owed $250,000, that would be an LTV of 83%. 

You typically need an LTV less than 80% to qualify for a mortgage refinance.

You typically need an LTV less than 80% to qualify for a mortgage refinance. So, Jason should do some quick math to make sure he doesn’t owe more for his home than this threshold based on the current market value. Lenders may still work with you if you have a high LTV and good credit, but they may charge a higher interest rate.

If you have an existing FHA or VA mortgage, you may qualify for a “streamlined” refinance program that requires less paperwork and less equity than a conventional refinance. Check out the FHA Refinance program and the VA Refinance program to learn more.

Reasons to consider refinancing your mortgage

There are a variety of reasons why it may make sense for you to refinance a mortgage. Here are some situations when doing a refinance may be a good solution.

  • Rate-and-term refinance. This is when you get a new loan with a lower interest rate, a different term (length of the loan), or both. It’s probably the most common reason why homeowners refinance their mortgages. 

    Example: If you have a 30-year, fixed-rate mortgage at 5%, you could refinance with a 30-year mortgage at 3%. That would reduce your monthly payments and the amount of interest you pay over the life of the loan.
     

  • Cash-out refinance. This is when you get a larger loan than your existing mortgage, so you walk away from the closing with cash. 

    Example: Let’s say your home’s market value is $200,000, and your mortgage balance is $100,000. If you need $25,000 to pay for college or renovate your home, you could do a cash-out refinance for $125,000. After paying off the original mortgage of $100,000, you’d have $25,000 left over to spend any way you like.  
     

  • Cash-in refinance. This is when you pay cash at the closing to pay off an existing mortgage balance. That could be necessary if you don’t have enough equity to qualify for a refinance, or you owe more than your home is worth. 

    Example: You might do a cash-in refinance if having a lower LTV qualifies you for a lower mortgage rate or allows you to get rid of private mortgage insurance (PMI) payments. Read or listen to How to Avoid PMI on Your Home Loan for more information.

You may also need to refinance a mortgage if you want to remove a co-borrower, such as an ex-spouse, from your loan. But if one spouse doesn’t have sufficient income and credit to qualify for a refinance on his or her own, your best option may be to sell the property instead of refinancing the mortgage.

5 ways to know if it’s the right time to refinance

Here are five ways to know if doing a rate-and-term refinance is a good idea.

1. You have an adjustable-rate mortgage (ARM)

Buying a home with an adjustable-rate mortgage comes with lots of advantages like a lower rate, a lower monthly payment, and being able to qualify for a larger loan compared to a fixed-rate mortgage. With an ARM, when interest rates go down, your monthly payments get smaller. 

Instead of worrying about how high your adjustable-rate payment could go, you might refinance to a fixed-rate loan.

But when ARM rates go up, you can feel panicked as your mortgage payment increases month after month. There are caps on annual increases, but your rate could double within just a few years if rates have a significant spike.

Instead of worrying about how high your adjustable-rate payment could go, you might refinance to a fixed-rate loan. That move would lock in a reasonable rate that will never change and make it easier to manage money and stick to a spending plan.

2. You could get a lower interest rate

If you bought a home when mortgage rates were higher than they are now, you’re in a great position to consider refinancing. As I mentioned, you need to do your homework to understand the cost and BEP fully. 

I recommend shopping for a refinance with the lender who holds your current mortgage, plus one or two different companies. Let your mortgage company know that you’re shopping for the best offer. They may be willing to waive specific fees if some of the necessary work, such as a title search, survey, or appraisal, is still current for your home.

3. You don’t plan on moving for several years

Once you know what a refinance will cost, make sure you’ll own your home long enough to pass the BEP, or you’ll end up losing money. For most homeowners, it typically takes owning your home for at least three years after a refinance to make it worthwhile.

4. You have enough home equity

As I mentioned, you typically need at least 20% equity to qualify for a refinance. If you have less, you may still find lenders that will work with you. However, unless your credit is excellent, you’ll typically pay a higher interest rate when you have low equity.

Also, if you don’t have 20% equity, lenders charge PMI. Adding that to your new loan could cut your savings and give you a much longer break-even point. 

5. Your finances are in good shape.

The higher your income and credit, and the lower your debt, the better your refinancing terms will be. If you’re unemployed or your credit took a dive due to a hardship, wait until your overall financial situation has improved before making a mortgage application. Good credit can save thousands in mortgage interest.

Good credit can save thousands in mortgage interest.

If you investigate doing a refinance and decide that it’s not worth the cost, another strategy to save money is to ask your lender for a mortgage modification on your existing loan. You may be able to negotiate modified terms, such as a lower interest rate, without having to pay for a full-blown refinance.

If you’re unsure how much home equity you have or know that you have very little, don’t let that stop you from inquiring about your refinancing options and saving money. Getting advice and refinancing quotes from your lender is free and will help you understand your range of financial options.

What’s a Mixed-Use Building & Should You Live in One

As more Americans move into urban areas, city planners have to get inventive to accommodate them. One solution that’s becoming increasingly popular is mixed-use developments. But just because this is a favorable option for city planners doesn’t mean it will be a good fit for you. Learn what mixed-use buildings are and read up on

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