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September 29, 2006
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Volume 34
Issue 39
 
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Real Estate
Dealing with rising mortgage interest rates
Many Americans are asking themselves what they should be doing in the wake of rising, and sometimes, fluctuating mortgage rates. It's an important question because for many Americans their home equity represents the cornerstone of their personal wealth. Taking control over your mortgage and clearly understanding what you can and cannot do is essential, say mortgage experts, whether you're a first-time homebuyer, or you've bought and sold a handful of homes in your lifetime.

"Taking control of your home equity means not allowing interest rates to push you into making a hasty decision," says Jim Ferriter, an executive vice president with GMAC Mortgage. "Instead, take a deep breath, contact your mortgage professional, and carefully explore your options. In addition, consider seeking the assistance of a financial planner or tax advisor to provide additional insights about managing your home equity in light of your other personal finance decisions."

FIRST-TIME HOMEBUYERS

For first-time homebuyers, says Ferriter, the two most critical elements to purchasing a home are becoming pre-approved, and in a rising interest rate environment, securing a favorable interest rate. In today's real estate market, sellers are extra cautious - before they take their homes off the market, they want confirmation that a buyer has been approved for financing, especially first-time homebuyers.

In addition to assisting a first-time homebuyer with becoming pre-approved for a mortgage, GMAC Mortgage's HomeCommand program protects a homebuyer from rising interest rates by capping the interest rate for up to 126 days. By capping the interest rate, first-time homebuyers have greater control over knowing what their monthly mortgage payment will be, based on the price of the home they purchase. The company also helps homebuyers get a jump on other house hunters by offering access to a free home finder service, which can alert homebuyers about homes that have just been placed on the market.

For many first-time homebuyers, the next biggest hurdle is selecting a mortgage product that fits their monthly budget. Even though interest rates have been rising over the past year, fixed-rate interest rates continue to remain at historically all-time lows. However, Ferriter says first-time homebuyers, typically those in their late 20s or early 30s, should look at the big picture in determining how to finance their homes. For some first-time homebuyers, it make more sense to consider an adjustable rate loan versus a 15- or 30-year fixed rate loan, as a way of managing monthly cash flow. First-time homebuyers should think about factors such as how long they anticipate living in their first home, the need for additional space as their family grows, career and salary growth, and property values of nearby homes.

EXISTING HOMEOWNERS

Rising interest rates present existing homeowners other issues. If you originally financed your home with an adjustable rate mortgage, now may be a good time to consider refinancing it with a fixed rate loan, particularly if your adjusted monthly payment will exceed what you could potentially pay with a fixed-rate loan, based on your credit qualifications. Using a tool such as an ARM vs. fixed rate calculator, available at www.gmacmortgage.com, can help homeowners better understand their options.

For other homeowners, rising interest rates offer a variety of dilemmas to Baby Boomers who may be saving for retirement while anticipating major milestones such as saving for their children's college education or paying for a wedding, all while trying to make the car payments. By gaining a better understanding of how and when to leverage their home equity, and possibly combining it with mortgage acceleration (adding an extra payment to the principal), these homeowners are able to take more control over their personal finances and prepare themselves to make smarter decisions with less stress.

In addition to consulting with a financial planner, another tool that can help existing homeowners better understand their options is SmartWatch, a software feature that provides homeowners with periodic information about various ways to leverage their home equity for such things as debt consolidation, college tuition, remodeling, or other major purchases. SmartWatch provides alerts to GMAC Mortgage homeowners when market conditions indicate when it may be a "smart" time to consider refinancing. It also can assess if a cash-out refinance makes sense or, to better understand how the growth in a homeowner's home equity, based on property values, may be applied to a future home purchase.



Courtesy of ARA Content

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