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MANAGING YOUR MORTGAGE
If you are approaching or already in your 'golden years', rebalancing the savings you have for retirement should be simple, hopefully.... However, your personal assets are not the only piece of your balance sheet that requires attention.

 

Size by itself demands attention: On average, American homeowners own around $120,000. Refinancing mortgages for a lower interest rate should not even be considered being that rates are well off their lows. However, other strategies, like maintaining low fees to utilizing your loan for other purposes, can be a smart move at anytime.

Refinancing an expensive home equity line of credit
HELOC's were the heroine of the home-improvement spree of the past several years, and it's simple to understand why.

Four years ago, the minimum monthly payment on a $50,000 line of credit was just $165. However, prime interest rate (the rate most HELOCs are attached to) has doubled to 8 percent, making the minimum is $330.

If you are having problems paying off your HELOC, you probably should look into converting it to a conventional loan.

Another option would be refinancing it and your mortgage into one single loan that is at a fixed rate -- that is only if your can locate a rate that is better than what you are currently paying for both loans and saves you enough money to cover the cost of refinancing.

You will need to determine your blended interest rate by diving your mortgage balance by total debt (mortgage balance plus line of credit balance) and multiply that by your mortgage rate. Then divide your HELOC balance by total debt and multiply by your HELOC rate. The resulting sum of these two is your blended rate. Check out the mortgage calculator to help determine whether the ARM loan is better than a fixed rate.

Suppose you have a $200,000 balance on your mortgage with an interest rate of 6.5% and a $100,000 balance on a HELOC with a 10.5% rate. Your blended rate is 7.8% - a rate you can still beat today.

Cancelling PMI
The current price of homes has been increasing at a steady rate...making it hard for buyers to put together enough money for a respectable down payment.

 

If you leave less than 20%, you will probably be paying PMI, otherwise known as private mortgage insurance.  PMI will result in you having to pay an additional $16-50 month for every $100,000 worth of debt. So, if you have a $500,000 mortgage and the cost of PMI is $30/$100,000, then you must pay an additional $150/The extra cost - $16 to $50 a month for every $100,000 of debt. This amount may seem insignificant that you overlook payments, but it does add up over time.

If you applied for a mortgage after July 1998, your lender is required to automatically terminate your PMI as soon as you have paid off 22% of your loan. However, you can request that your PMI be discontinues once you have accomplished 20% worth of equity. Learn more about building equity.

This is when price increases are beneficial: you will likely reach the 20% mark sooner than you anticipated if prices in your housing market have increased notably. It is important to understand that all that gain belongs to you, not the lender.

The only downside is that you will have to shell-out around $400 for an appraisal to confirm that your principal payments and gains are equal to at least 20%. However, a few months of PMI savings should satisfy that cost.

Prepaying your mortgage
Paying off your mortgage will likely result in a strong sense of freedom. However, that does not necessarily mean that it is a smart move financially.

Prepaying mortgages is efficiently the same as gaining a return equal to the interest rate on the loan. However, as a result of recent low mortgage interest rates - you could be paying less than 6% on a 30-year loan - don't exceed what stocks have traditionally returned.

A smarter move for those lacking retirement funds is to use the equity from their home and take on more debt. If you anticipate selling your house when you retire, you can apply for a cash-out refinance loan and invest the money.

This is a very wise move if you have benefited large gains in your home's worth and can put that money to work successfully.



        

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