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How to be protected against higher rates Print E-mail
Thursday, 14 September 2006
NEW YORK-- With today’s rising interest rates and monthly payments, there are some tips on how to do smart moves if there are adjustable-rate mortgage (ARM). 

1: Know the stakes
Rising interest rates mean ballooning payments. And since ARMs make up about 25 percent of mortgages, it may pose a widespread problem.

2: Buy some time
If you have a quick-changing mortgage you may want to think about refinancing.

You'll want to go back to your original lender and tell them you want a safer loan. Make sure you also look at the cost of refinancing. Generally it costs about a percentage-point or a percentage-point and a half of your original loan.

So refinancing a $200,000 mortgage could cost up to $3,500.

3: Re-Evaluate your Home Equity Line of Credit
If you can, refinance into a single 30-year fixed loan. This will eliminate all uncertainty with the fate of future rates. You can also ask your lender about some other HELOC products that have fixed rates for a certain amount of time.

And of course, if it's at all possible, pay off your HELOC. But be careful. Prepayment penalties can be as high as $6,000.

4: Don't Consolidate
Americans spend most of their money on their homes and their cars. You don't want to consolidate all of your other debts (credit card and student loans, for example) into your mortgage because it stretches out the life of your loan and makes it more expensive in the long run.

You don't want to be using a 30-year mortgage to be paying off a car that's going to last six years.

5: Forget the fees
Make extra sure you're not paying more than you need to every month. Re-evaluate your Private Mortgage Insurance payments. You're probably paying this monthly fee if you put less than 20% down on your home.

If you took out your loan after July 1998 and you have paid off about 22% of the loan already, your lender must cancel your PMI payments. But it's up to you to go to your lender and prove your gains.

If you live in an area that has appreciated significantly, check recent sales in the neighborhood. If you've been paying off your mortgage diligently or homes in your area are going for well above what you paid for your home, it's worth your while to get a re-appraisal from your lender. It may cost you around $350, but if you can get out of paying hundreds of dollars each month for PMI, it'll be worth it.

Edwina Baniqued

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